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Car Ownership vs Ride-Hailing: Which One is Better?

· Personal Finance

Generally, there are 3 types of car owners:

(i) automotive enthusiasts

(ii) people who treat cars as status symbols and

(iii) those who just need a hunk of metal to get them from point A to B

If you’re the third kind of car owner, you’re probably looking for ways to save your transportation cost. After all, it is very expensive to own a car. For instance, an entry-level sedan could cost you RM100,000 over five years!

While the public transportation system is not functional and convenient enough in Malaysia, it’s easier than ever to get around without relying on public transportation. The question is, does it make financial sense to ditch your car and Grab everywhere? Or should you sign up for a car subscription?

Here’s how much it costs to own a car, compared to ride-hailing.

What is the cost of car ownership? 

If you think carefully, the cost of owning a car actually goes beyond your monthly loan commitment. This is because you’ll also have to consider petrol costs, maintenance, road tax, insurance, parking, and toll charges.

For example, if you own a Proton Persona:

You have a relatively short daily commute, and only spend RM150 a month on petrol. To come out with a rough calculation, we include maintenance, tyre replacements, road tax and insurance – only occur once a year or every few months, but we’ve spread them out to reflect their true monthly cost.

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Although your monthly loan commitment is only RM942, your total monthly cost of car ownership can be RM1,572 a month based on the example above.

On the other hand, what happens to your monthly costs once your car loan is completely paid off? Your cost of car ownership may fall to RM609 a month:

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What is the cost of ride-hailing? 

Let’s take Grab Car as an example, what’s the cost of an average trip on a ride-hailing service? If you have a 10km commute to work, a GrabCar trip could cost you around RM15:

Cost per trip:

  • Base fare – RM1 
  • Cost per km – 10km x RM0.80 
  • Cost per minute – 25 minutes x RM0.25 
  • Total = RM15.25

Assuming you take two trips a day for every working day, it could cost you RM630 a month. Perhaps you’ll spend RM50 per weekend commuting as well. You’ll also have to fork out your own toll fees. On top of that, you’ll also have to pay extra if you want to travel during peak hours – let’s assume you take 10% of your rides during peak hours, incurring double the fare. To keep this estimate simple, we’ll assume these costs stay the same over five years:

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If you look at the monthly cost only, it’s cheaper than owning a car for sure. But is it really worth over five years time?

Now, let’s compare the cost of Car ownership and Ride-Hailing:

Based on the scenarios above, we pit car ownership and ride-hailing against each other. Here’s how much they can potentially cost:

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The takeaway from our comparison is that it can be generally more expensive to own a car, but only during its loan tenure. Once your loan tenure is paid off, owning a car can be cheaper than ride-hailing, depending on your car model.

What factors should you consider?

Of course, these costs are highly subjective. The most cost-effective option for you will depend on these variables:

  • Car cost. More expensive cars will incur a higher cost of ownership. If you opt for a cheaper car or a second-hand model, it could be more cost-effective to own a car. 
  • Car lifespan. How long do you intend to use your car? Car ownership is more cost-effective if you use your car for longer to avoid a new car purchase. 
  • Commuting distance. If you have a short daily commute, using a ride-hailing service could be cheaper than owning a car. 
  • Value of your time. Have a long daily commute, and hate wasting time driving? Using a ride-hailing service can make sense if you use the time you save on work that is important to you, or that can bring you income (assuming that you’re comfortable working in the backseat of a car). However, you’ll also have to balance that with the time spent waiting for your Grab car. 

Which should you choose? 

So which option makes the best financial sense for you? Generally, it can boil down to:

  • Owning a car: if you have a long daily commute and you intend to keep your car for many years. 
  • Ride-hailing: if you have a short daily commute, or if value your time too much to spend it driving.

Now, think carefully about it and make your choice.