Should You Buy a New Car or Use Ride-Hailing Apps Only?

The upfront cost of buying a car is very high. If you take a loan, you also need to take into account the amount that you will have to pay back to the lender in Equated Monthly Installments (EMIs). Then, you have to account for the cost of maintaining the car, its insurance and fuel costs. More importantly, you will have to pay more if you hire a driver.

You do have another option though: continue with your ride-sharing apps instead of buying a car. There are issues with this as well. The fare per kilometer is usually high and can increase rapidly during peak times (also known as surge pricing). You might not get a cab on time—it depends on the availability of drivers in the area. And on many occasions these are not available at night.

Now it’s time for you to choose any one of the options. Still unsure? If so, let’s divide the cost of owning a car over a period of seven years, such that a mileage of 40 km per day and a fuel efficiency of 12 km per liter in city traffic. Although many people keep their cars for a long time, seven years is a good average, especially for Millennials and GenZ who upgrade their cars from time to time. So, what exactly is the cost of owning a car? goes here.

Downpayment and EMI: A typical high-end hatchback or midsize subcompact SUV costs around 10 lakhs. assuming a down payment of 30%, or 3 lakh, and interest in the range of 7-9% with 1% processing fee on the remaining loan, and a tenure of five years, the total EMI comes out to 14,000 per month and total ownership finance 11.5 lakhs.

fuel: Assuming annual fuel inflation of 8%, the fuel alone will burn a hole in your pocket approx. 11 lakhs in seven years. (Base price = 100 per liter)

Insurance and Maintenance: Own damage and third party insurance cover will set you back approx 15,000 per annum. You’ll need to set up an extra 5,000 per year for repairs and services. As the car gets older, the insurance premium tends to decline along with the fall in the Insured Declared Value (IDV), even as the cost of maintenance accelerates.

Parking Fee: Since this varies greatly, based on user and location, we have not included these in our calculations. However, if you don’t have free parking at your home or office, you can add roughly. For example, if you are a resident of Delhi, assuming a typical 8-hour working day, the Municipal Corporation of Delhi (MCD) charges approx. 10 per hour. over a period of seven years, it will set you back by second 1.3 lakhs.

Opportunity Cost: Had the downpayment been invested in a long-term bond fund, the return (interest excluded) would have been 7% after indexation and taxation. 1.8 lakh approx.

At the end of seven years, if the vehicle is sold at 30% of its original cost, the total cost of ownership becomes approximately 22.6 lakhs.

However, some people prefer to use Uber or Ola instead of buying a car. “With Ola or Uber, I don’t have to worry about finding a parking spot. Also, it is more convenient than driving during peak hours, and I can easily commute to complete my daily tasks.” travel time,” said Hardik More, an associate product manager in Mumbai.

Let us now break down the costs of using these cabs for a period of seven years, traveling 40 km per day and 20 days a month.

Base Fare: It is a fixed amount that has to be paid irrespective of the distance traveled (usually in the range of Rs. 50-60).

Distance Fare: ballpark figure in metros 9 per km during non-peak hours.

Ride Time Fare: This is the per minute fare (does not change during peak hours)

Peak Hour Charges: Fares increase in multiples of non-peak charges (assuming 1.5 times a trip or day in our calculations).

GST: 5% of the sum of all the above.

At the end of seven years, for our base case, the cost of using Ola and Uber would come to approx. 24 lakhs. he is at least 1.4 lakh more than what you spend on owning a car.

However, if you hire a driver for your car, the statistics are skewed in favor of ride-hailing companies. consider the salary of 15,000 per month (conservative estimate), with an annual increase in salary of 10%, the cost of owning a car adds another 17 lakhs in seven years.

to be or not to be

If your average daily commute is less than 20 km, then using Ola or Uber, as opposed to owning a car, will be slightly cheaper over a period of seven years.

However, if we cover more distances per day, the benefits of using the services of ride-hailing apps start to diminish. With total travel of 40 km or more in a day, owning a car becomes more economical. There are also issues of convenience. “Cab drivers always demand cash, often cancel rides without explanation and often deviate from the recommended route displayed on the map. This not only increases the travel time but also results in higher fares. On several occasions, I have been late to my office as a result. As a result, I have been avoiding these services lately”, said Govind Goyal, a curation expert based in Gurgaon.

Car ownership still has aspirational value and hence, for many, it can be more than just a financial calculation. It can also be economical as compared to Uber/Ola if you share the car and its cost with multiple family members.

Some Smart Cost-Saving Tips

Buy Used Car: A new car can lose up to 20% of its value in the first six months. Depreciation is one of the biggest costs that the public overlooks when making a car buying decision. Suppose you buy a used car 5 lakhs with a down payment of Rs. 3 lakh more loan 2 lakh, then using the same assumptions as our previous calculation, your total car ownership cost over seven years comes down to less than 19 lakhs 24.5 lakhs cost of using Uber/Ola.

Negotiate a better deal on the loan:Negotiate with your lender for a lower interest rate and try to increase the principal amount repaid as a percentage of your EMI. (This reduces interest payments over the life of the loan.)

“Buying a car will require a one-time purchase cost, but there will be flexibility in terms of personal transportation. When using ride hailing services like Ola/Uber, the car purchase amount will be invested to cover depreciation, insurance and other costs associated with car ownership. Apart from avoiding maintenance costs, it can be done to earn returns. In most cases, ride sharing works better than ownership, and it does in this case as well. But we need to consider non-financial aspects as well. , like the flexibility of having your own transport”, said Ravi Saraogi, SEBI registered investment advisor and co-founder of Samasti Advisors.

The choice is ultimately yours. If you’re buying a car for its convenience and aspirational value, a slightly higher cost might not move the needle. Similarly, if you travel a lot (more than 20km a day), it is cheaper to buy a car. On the other hand, an Uber/Ola saves you the hassle of driving in traffic and maintaining a car. You can use our calculations to guide your decision.