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 Sh1-million 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 money-market 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!