Should you buy a new car or just use ride-hailing apps?

Buying a car has a huge upfront cost. If you take a loan, you will also have to factor in the amount you need to pay to the lender in equated monthly instalments (EMIs). Then, you have to account for the maintenance costs of the car, its insurance, and fuel costs. More importantly, you will need to shell out more if you employ a driver.

You do have another choice, though: Continue with your ride-sharing apps instead of buying a car. There are issues with that as well. The per-km fare is usually high and this can go up sharply during peak times (also known as surge pricing). You also might not get a cab in time—that depends on the availability of drivers in the area. And, on many occasions, they are simply not available at night.

It’s now time for you to choose one of the options. Still unsure? If so, let’s break down the cost of owning a car for a period of seven years with a round-trip of, say, 40km per day and fuel efficiency of 12 km per litre in city traffic. Although many people retain their cars for longer periods, seven years is a good average, especially for millennials and GenZ who periodically upgrade their cars. So, what exactly are the costs of owning a car? Here goes.

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

Fuel: Assuming yearly fuel inflation to be 8%, fuel alone would burn a hole in your pockets by nearly ₹11 lakh over seven years. (Base price = ₹100 per litre)

Insurance and maintenance: Own-damage plus third-party insurance cover would set you back by around ₹15,000 per year. You will need to set aside an additional ₹5,000 per year for repairs and services. As the car ages, insurance premiums fall in line with the decline in Insured Declared Value (IDV) even as maintenance costs tend to accelerate.

Parking charges: Since this varies significantly, depending on the user and the location, we have not included these in our calculations. However, if you do not have free parking at your home or office, you can make a rough addition. For instance, if you are a Delhi resident, assume a typical 8-hour workday, the Delhi Municipal Corporation (MCD) charges around ₹10 per hour. Over a period of seven years, this will set you back by another ₹1.3 lakh.

Opportunity cost: If the downpayment was invested in a long-term bond fund, returns after indexation and taxation (interest foregone) at 7% would have fetched ₹1.8 lakh approximately.

At the end of seven years, if the vehicle is sold at 30% of its original cost, the total cost of ownership comes to about ₹22.6 lakh.

Some people, however, prefer using a Uber or Ola over 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 easily use the commute time to complete my daily tasks", said Hardik More, an associate product manager based in Mumbai.

Let’s now break down the costs of using these cabs for a period of seven years, with a round trip of 40 km per day and for 20 days a month.

Base fare: This is a fixed amount that has to be paid irrespective of the distance travelled (usually in the range of ₹50–60).

Distance fare: The ballpark figure in metros is ₹9 per km during non-peak hours.

Ride time fare: This is the fare charged per minute (doesn’t vary during peak hours)

Peak hour charges: Fares increase in multiples of non-peak charges (1.5x assumed on one trip or day in our calculations).

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

At the end of seven years, for our base case, the costs of using Ola and Uber will come to about ₹24 lakh. That is at least ₹1.4 lakh more than what you spend in owning a car.

However, if you were to hire a driver for your car, the figures become skewed in favour of ride-hailing companies. Assuming a salary of ₹15,000 per month (conservative estimate), with annual increases in salary of 10%, the cost of owning a car goes up by another ₹17 lakh over seven years.

To own or not to own

Using Ola or Uber, as opposed to owning a car, would be slightly cheaper over a period of seven years if your average daily travel is below 20 km.

However, if we were to travel more distance per day, the benefits of using the services of ride hailing apps start to shrink. With a round trip totalling 40 km or more a day, owning a car becomes more economical. There are also issues of convenience. “Cab drivers always demand cash, often cancel rides without any explanation and frequently deviate from the recommended route displayed on the map. This not only increases travel time but also results in higher fares. On numerous occasions, I have arrived late to my office as a result. Consequently, I have been avoiding these services lately", said Govind Goyal, a curation specialist based in Gurgaon.

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

Some smart cost-saving tips

Buy a Used Car: A new car can lose up to 20% of its value in the first six months itself. Depreciation is one of the biggest costs that the public ignores when deciding to buy a car. Suppose you buy a used car of ₹5 lakh with a down payment of ₹3 lakh and a loan of ₹2 lakh, then using the same assumptions as our earlier calculation, your total car ownership cost over seven years falls to ₹19 lakh, lower than the ₹24.5 lakh cost of using Uber/Ola.

Negotiate a better deal on loans:Negotiate with your lender for a lower rate of interest and try to increase the principal amount repaid as a percentage of your EMI. (This lowers the interest payment on the lifetime of the loan.)

“Buying a car will entail an outright purchase cost, but there will be flexibility in terms of personal transport. While using ride hailing services like Ola/Uber, the car purchase amount can be invested to earn a return, apart from avoiding depreciation, insurance and other maintenance costs associated with car ownership. In most cases, ride sharing works out better than ownership, and it’s the same 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, a Sebi Registered Investment Adviser and co-founder of Samasthiti Advisors.

The choice is ultimately yours. If you are 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 20 km a day), owning a car is cheaper. On the other hand, an Uber/Ola spares you the hassle of driving in traffic and maintaining a car. You can use our calculation to guide your decision.