When owning a car is more expensive than hiring
By MUNGAI KIHANYA
The Sunday Nation
Nairobi,
12 March 2023
Joseph Ngure says that his friend is caught between buying a car and
hiring one. This is a decision that many have to make – not just about
cars, but a lot of other things as well. The bottom line is this: hiring
is cheaper in the short term but expensive in the long term. Buying is
expensive in the short term and cheap is the long term.
Ngure’s friend is comparing buying a car worth about Sh1 million to
hiring a similar one. She doesn’t need a car on a daily basis since she
lives a walking distance from her workplace and the employer provides a
company car when she needs to go on field work.
One fact that’s generally ignored about cars is that they cost money
even when you are not using them. Even if you decide not to insure it,
it will still cost you! If you buy a car for Sh1 million today, keep it
in your garage for one year, you are unlikely to find a person who will
pay you Sh1 million for it. Chances are that, your best offer will be
about Sh850,000. In other words, the car has cost you Sh150,000; that’s
over Sh10,000 every month!
This is even higher than the cost of insurance which would be about
Sh50,000 for one year. Thus, the cost of owning the car is about
Sh200,000, or Sh16,000 per month. It gets even higher if the vehicle is
bought using a loan – interest charges are an additional cost.
Therefore, since Ngure’s friend will be using her car sparingly, the
question she needs to ask herself is whether she can hire a car at
Sh16,000 per month for the days she needs one. Now a small Sh1million
car will probably cost about Sh3,000 per day. So, with Sh16,000 she can
hire it for three days each month.
Now, if the Sh1 million is put in good moneymarket unit trust, it will
earn about sh70,000 in one year, or about Sh5,800 monthly. Wouldn’t this
be enough to fuel the hired car?
Given this scenario, it obvious that, from a purely financial point of
view, buying would not be a good idea. It is better to be hiring when
needed for leisure trips. But cars are not just for travel, they are a
status symbol and that discussion is beyond the scope of this column!
