Dealers and rental companies may praise the low monthly payment for rental cars, but you need to consider a little more before making a choice.
So how do you know whether to go rent a car or buy your own? Your personal finance, driving habits, and lifestyle choices all affect your choice to rent or buy a car.
Don’t forget to take out auto insurance when you’re comparing prices. Car rentals come with separate insurance requirements, and states also set mandatory minimums for car owners. Insurify solves the problem of comparing car insurance rates for rented cars with its simple and risk-free comparison tool.
How car rental works
Car rental is the same as long-term car rental. You will be driving a new car within a certain period of time, usually about 36 to 48 months. At the end of the rental period, you can return the car to a new hire, buy the car you rented from the agent or buy the car elsewhere.
The process of renting a car is like buying a car: you will need to study the type and design, test drive a few options, compare the price, and finally negotiate with the agent.
To understand how to get the best lease, you need to know how rents work. Car rental rates can be divided into several parts:
MSRP: MSRP, or Manufacturer’s Recommended Retail Price, is a un negotiate able to figure. This refers to how much the car manufacturer proposes to sell the car for.
Preferential price (capitalization cost): This is the amount you actually pay for the car, including the agent’s marker on the price. This price is negotiated.
Money Factor: Also known as the rental or rental fee factor, the money element is used as part of the calculation of rent payment. The goal of the money factor is to calculate depreciation on a rental car and operate similarly to the interest rate for a car loan. Although the amount is set by the manufacturer, agents can mark it, so be sure to ask if you are receiving the base interest rate during negotiated.
Surplus value: When a new car hits the road with a new driver, the value begins to drop in value. Car depreciation is the most serious for new vehicles and the remaining value is the value of your vehicle at the end of the lease term.
Sales tax: Even though you don’t own your rental car, you’re still subject to sales tax on a portion of each monthly payment. Of course, you can not get rid of this, but the amount depends on how much you negotiate other factors.
Agents put all this information together to make monthly rental payments. When it’s time to negotiate rents, keep these factors in mind to get the best deal.
Once you’re settled on the car and the price, you can sign a rental contract and bring your newly rented car home.
Pros and cons of car rental
Pros and cons
Monthly payments are lower than the total cost of buying in the long run
Driving new cars every few years Car insurance is more compulsory than owning
A warranty usually includes maintenance Of No property at the end of the lease term
Don’t worry about reselling Mileage Limits limiting the amount you can drive
The main benefit of car rental is that you can get a lower monthly payment than a car loan during the rental period and you can drive a new car after a few years.
However, the total cost of rent is not a big problem for the average driver. For one, the payments never stop. When you engage in an automobile rental cycle, you will pay more than you can with just one car loan for six months.
When you compare the price of a three-year lease with a six-year car loan, the monthly cost may be more reasonable with the lease. But if your budget is a matter of concern, then it’s important to look beyond the repayment terms. At the end of the rental period, you can redeem your rented car for another car or buy it from the company —after you’ve paid for the car. After six years of paying for a car, you own your car and can continue to drive or resell it.
Most leases do not require up-to-face payment, but this may depend on your credit score. However, this amount may still be less than the amount you need to pay to buy a car.
Insurance for rental cars
Your car insurance can also be more expensive when you rent a car. This is because car insurance premiums are compulsory and are recommended exclusively for car rental contracts. Since the agent retains ownership of the vehicle, your landlord needs to make sure your property is protected.
Spread insurance: Like owning a new car, renters are at risk when the total amount payable exceeds the actual cash value of the car. And if you owe more rent than the value of your car, you will be responsible for paying the difference. Some leases cover coverage gaps, but if not then this is a good add-on to consider.
Comprehensive and collision insurance: Almost every state has its own minimum requirement for liability insurance, but comprehensive coverage and collisions are usually optional supplementary insurance. However, when you rent a car, it is very likely that the landlord will ask you to buy this additional insurance with the actual cash value of the car when it is not possible to deliver the error to someone else. This can mean that you are at fault in a crash or an act of God, like fallen trees, damaging your car.
Getting the right insurance for a rental car can be more expensive than when you own it, but you can still shop around to find the best deal. Insurify lets you get personalized and affordable auto insurance alerts in minutes based on the exact coverage you need.
Pros and cons of buying a car
Pros and cons
The total cost is less expensive than the maintenance warranty that finally expires
Unlimited kilometers More expensive to drive a new car every few years
Owning a car at the end of a car loan Monthly loan payment may be more expensive than car rental payment
Can save money on car insurance
Buying a car upfront may be a little more expensive than renting. For one, you will need to prepay some form of payment for the car and your monthly car loan payment may be more expensive than the car rental payment.
But for a longer period of time, the area begins to change, and you are a little more financially able. Paying off your car loan on time or early means you own the car completely, usually within six years. The car is yours later.
That means two things to you: your monthly car loan payment suddenly disappeared, and now you have a property that can sell for its real value. Money-conscious drivers should keep this in mind when comparing borrowing costs with rental payments.
As an automobile owner, you have full control over how you use and protect your car. For example, when car renters have to worry about distance limits, you can save a road meter test to see when to change.
You can also control how much or little car insurance to buy. While rental companies often require collision and comprehensive insurance, car owners can choose whether to purchase this additional insurance. You only need to meet the state’s minimum liability requirements to legally drive your own car. That doesn’t mean you shouldn’t consider full auto insurance, but you get a little more flexibility as an automotive owner.
However, if you really want to drive a new car every few years, buying a car won’t make much financial sense. New car depreciation as soon as they hit the road and even normal wear and tear can cause the value of the car to be much lower than the purchase price.
Rental vs. Car Purchase
Most people benefit the most from buying a car instead of renting it. The total cost of ownership is less than the rental and when your loan term ends, so do your monthly payments. Plus, you’ll have a property that you can sell for the next car on the road.
But there are still some privileges when renting. Lower monthly costs and the opportunity to drive a new car every few years appeal to some drivers thinking about using a car in the short term.
Finally, the right choice for you depends on your budget, driving habits, and lifestyle choices.
Who gets the most out of buying a car?
Buying a car is best if you:
Want to save money on total driving costs
Put a lot of miles on your car to get around for work or play
Plan to drive the same car for an appropriate period of time
The benefits of buying a car include a lower total cost of using the car, more reasonable and flexible insurance options when using the car.
When you buy your own car, you can forget about the number of kilometers driven and choose the car insurance that best suits your car and budget: you are in full control. Also, after your car is paid off, you have a property that is all yours. You can keep driving that car as long as you want and can.
Drivers who buy a new car are greatly affected by the car’s price loss, but buying a used car instead can help you stay ahead of the reseller value. With the right coordination, you can use your own car to buy and sell it yourself when you’re ready to upgrade.
Who benefits the most from car rental?
It is best to rent a car if you:
Want to avoid up-to-pre-payment costs such as up-to-pre-payment
Don’t want to cover maintenance costs on your own
May be below the mileage limit
Likes to drive new cars every few years
Drivers who need a lower monthly payment, want to always drive a new car, or run a small business that will benefit the most from the car rental.
While not the best bet for the most affordable total cost, car hire may have a lower monthly payment than an automobile grant for a new car in the short term.
Since the lease term is between 12 and 48 months, you will have the opportunity to drive a new car more often than when you buy a car.
Make sure your new car is protected
Whether you’re renting a car or buying your next car, make sure it’s protected with the right auto insurance. Just as you want to find the best monthly rates for leases or auto loans, you should also compare car premiums.
The best way to find an affordable policy with all the right scopes is to compare personalized reviews with Insurify. With one profile and minutes, you can get a discount from up to 20 car insurance companies. And the best part? It’s free.