Buying A Car Vs Hiring Taxis Everywhere: Which is More Economical?

Cab services are now available at fingertip after the start of Uber and Ola cabs. Also, there have been surveys around in social media stating that hiring cab services are cheaper than owning a depreciating asset like a car. Factors like commitment to monthly EMIs, fuel cost, maintenance cost, and insurance should be considered before the purchase.

Are you confused about whether to buy a car or just book Uber/Ola?

Let us crush some numbers and draw a comparison between using cab services daily and buying a car to understand the most cost-effective and best-suited option. We will consider a tenure of five years for this calculation.

Cost of Hiring cars 

First, find out the cost per kilometre charged by the cab services provided in your city. This is because the fuel and other expenses vary from city to city.

For instance, if you live in a metro like Bengaluru, the Ola/Uber driver’s average cost is Rs 20-22 per kilometre. Here if we consider a peak hour surge in prices, the average cost will go up significantly. The peak hour cost of travel can also surge up to Rs 28-30 per km.

Let us assume the average cost of peak hours and non-peak hours, which will be Rs 22-23 per km if you hire a taxi (here, we are estimating less frequent peak hours travel)

Now let us compare this cost with the purchase of a car.

Cost of purchasing a car

Let us assume you wish to buy a hatchback car for Rs 7 lakh in 2021. You make a down-payment of Rs 2 lakh and avail a loan of the remaining Rs 5 lakh. The loan has a repayment tenure of five years with an interest rate of 9% per annum. Below will be the break of expenses:

• The total amount payable towards the car loan interest in 5 years would be equal to Rs 1.23 lakh. The car’s total cost, including down payment, loan principal and interest, comes to Rs 8.20 lakh.
• Let’s assume the cost of car insurance is Rs 80,000 over the next 5 years.
• The average maintenance cost for a medium-sized car would be about Rs 15,000 per year, i.e. Rs 75,000 for 5 years. 
• The primary variable expense of running the car is the fuel cost. Let’s assume that your car gives an average of 10 km/litre, and you travel an average of 30 kilometres per day for work which comes to around 700 km in a month (added to and fro for errands during weekends). Hence, your total travel in the next 5 years for work would be about 42,000 km. Let’s also assume you go on some road trips after every 2-3 months, which is around 3000 km per annum, for 5 years, it totals to 15,000 km. The total travel including travel for work and road trips will be around 57,000 Kms in next 5 years. Considering the average fuel cost as Rs 80 per litre, the total fuel cost would be Rs 4.56 lakh in 5 years. (here, we have assumed the average price of fuel as constant over the years). 
• Let us assume that the cost of miscellaneous expenses like parking fees, change of car perfumes or seat cover, etc., amounts to Rs 15,000 in five years.
• The resale value of this car, provided it is in good contusion, is at present Rs 3 lakh. 

Hence, the total cost of the car for a tenure of 5 years would come down as below:

Cost of Car Purchase (5 years)	Amount for 5 years
Down Payment for car purchase	Rs.2 lakh
Add: Amount payable for car loan including interest	Rs.6.20 lakh
Add: Maintenance cost	Rs.0.75 lakh
Add: Insurance cost	Rs.0.80 lakh
Add: Fuel cost	Rs.4.56 lakh
Add: Miscellaneous expenses	Rs.0.15 lakh
Less: Resale price	Rs.3 lakh
Total cost of the car in 5 years (A)	Rs.11.46 lakh

The total amount incurred for the car in five years comes to Rs 11.46 lakh, equal to Rs 23 per kilometre.

This cost will increase if upkeep, cleaner and driver expenses are added. Hiring a driver will shoot up the price significantly.  

Additional expenses to compare it with the cost of hiring cab service:

Cost of Car Purchase (5 years)	Amount for 5 years
Car cleaning expenses (Rs 1500 per month)	Rs.0.90 lakh
Driver salary (Rs. 12000 per month)	Rs.7.20 lakh
Total additional cost	Rs.8.10 lakh
Total cost of purchase (A) + (B)	Rs.19.56 lakh

With all the expenses added above, the cost per kilometre shall increase to Rs.34 per km (Rs.19.56 lakh/57,000 km).

Thus, the cost of purchasing a car can range anywhere between Rs.20-35 per Km, which is considerably higher than what we pay for Uber/Ola at Rs.20-22/km.

Conclusion

If we consider only the cost aspect, then hiring a taxi is cheaper. Also, hiring saves you time as you need not have to drive or look for parking spaces. 

However, entirely relying on taxis comes with some drawbacks, like you cannot rely on them at all times. In extreme situations like a pandemic when the cab services were closed, visiting a hospital in case of an emergency would become challenging without having a car.

Also, access to Ola/Uber cabs is not readily available in all city locations, or their access is restricted for a specific period. 

On the other hand, having your car provides added comfort and convenience. In large families, or when the residence is in a remote locality, car ownership is essential. However, some people like to spend more on a car than they can afford to buy.

In such a situation owning a car becomes even more expensive. So while buying a car, one should be aware of how one needs to travel and how cost-effective it would be. This is because if you frequently travel short distances, then hiring a taxi would be economical compared to owning a car.