Should I Buy A Car or Use Car-Sharing Services? Part 3

We made it to Part 3 of the epic car rent vs. buy analysis! In Part 1, I shared the cost of car ownership. In Part 2, I calculated how many Zipcar or UberX rides you could take for that same amount of money. Finally, today I’ll share what all of these numbers really mean and what I would do with this information.

So should I buy a car or not?

I was surprised when I completed my rent vs. buy analysis. I sort of expected to learn that you could take 500 UberX rides for the cost of owning a car, or rent a car for the evening 200 times. So this exercise was a good reality check. I take away from it two key things: owning a car is expensive, but other options can be too; and it REALLY pays to have a cheap car. This whole analysis would be different if I used a $5,000 purchase price, let alone an average used car, which goes for about $10,000, or (the horror!) an average new car, which costs a whopping $32,000! (Source). Even a $10,000 car would increase the yearly cost of ownership by at least 2x, allowing for 6 to 8 UberX rides per week in equivalent spending (note that this was a super quick calculation and does not account for likely salvage value after four years or the increased cost of everything from taxes to insurance that comes with a more expensive vehicle).

The advice I would give my friend is to take a look at these numbers and think about how often he really wants to rent a car or take a cab. If he finds himself wishing to take a cab 5+ times a week, it might be worth it to buy a cheap car. If, however, he wants to take a few yearly trips, rent a car for an afternoon once a month, and take a cab a few times a month, he’s probably better off without a car.

This is really where the personal aspect of personal finance comes in. I can give you the numbers, but you have to look at what they mean in your situation. For example, I do own a car because I drive to work every day. It would be more expensive for me to rent a car or take a cab to work every day. My car also allows me to have a certain lifestyle that I value, with luxuries like driving to the grocery store or out of town to visit my parents with frequency. Each person’s needs are different, and both personal and financial considerations need to be taken into account.

Other considerations

There are a few other things that I would recommend factoring in to the decision to buy a car. First, consider the fact that when you buy a car you personally are shouldering most of the costs, whereas when you take a cab or rent a car you are more likely to share those costs. For instance, if I drive out of town with a group of friends, they will usually offer to share the costs of parking and gas. However, I have never found myself in a situation where anyone offered (and I wouldn’t ask) to share the cost of wear and tear on the car, a prorated portion of insurance or taxes, etc. You pay for maintenance, registration, and insurance, and no one else really sees that. They see the cost of a tank of gas, which is only about a quarter of the yearly cost of operating a car in the scenarios outlined previously.

A second scenario could involve a group of friends renting a Zipcar to go out of town for the weekend. In this scenario, I can almost guarantee that everyone would equally split the cost of the rental. This wouldn’t even seem like a question to most people. The same goes for a shared cab – you almost always split it evenly. If you find that you often use a car for shared purposes, it may seem more cost effective to buy a car but in reality it may result in you paying a larger share of the expenses.

Next, let’s consider the fact that I, as a car owner, still occasionally take a cab or rent a car. If I need to go to the airport, I call Uber. If I’m going to certain areas of the city where parking is expensive, I call Uber. If I’m heading to IKEA to buy furniture, I might rent a Zipvan in order to fit everything. All of these costs of course get added on top of the regular costs of car ownership. When you do not own a car, you have more flexibility to get exactly what you need when you need it, without bearing the burden of a sunk cost for a vehicle that is not useful in a given situation.

The thing about sunk costs

One major barrier to the perhaps otherwise more financially beneficial option of renting cars as needed is the psychology that seems to surround sunk costs. Sunk costs are costs that you have already incurred and will not get back regardless of future behavior, such as the purchase of a car. The opposite of a sunk cost is a prospective cost, or a cost that may be incurred in the future if you take a certain action. Renting a Zipcar for an afternoon is a prospective cost, because you only incur that cost if you undertake the action of renting the car.

If you’ve already paid for a car, the purchase of your car is a sunk cost, and you incur minimal additional expense each time you use your car. If you have to pay for a car every time you want to use one, even if in total it winds up being less expensive than owning a car, the fact that it is a prospective cost seems to make people think twice about spending the money. Unlike a sunk cost, the money associated with a prospective cost is still fungible. You can use that money to rent a car, or go out to dinner, or buy a new shirt. When you’re dealing with the sunk cost of owning a car, you have already spent the money and have the car. You can’t easily trade the car for dinner out or a new shirt.

I liken this to a bias that I have which favors paying now vs. later. I would just rather get the spending done and over with. I don’t like recurring costs (although I wouldn’t pay more to avoid them). I also don’t like spending money unless I need to. I can see that if you have to pay each time you use a car, you would think very carefully about spending that money and if you really need to spend it. The use of the rented car becomes more about utility and less about convenience. So I can see how one might have trouble justifying the use of a Zipcar once a week, even if they know logically that is less expensive than buying a car.

I don’t really have a solution to this, except to suggest that you do some math for yourself and look at what makes the most sense over some reasonable time frame. Once you’ve done your analysis, trust the numbers. Rent that Zipcar once a week without feeling guilty or overthinking it. And feel better knowing that, while owning a car allows you to use it without added cost whenever you want, unforseen added costs can come out of nowhere. Ever gotten flat tire? Ever gotten a speeding ticket that causes your insurance rates to go up? Just because you own a car doesn’t mean you’re done paying for it.

You seem to be forgetting something…

You might be asking yourself right now “uhh does this girl not have legs? Does she not live in a city with great transit? Has she never heard of a bike?” These are all valid questions. Walking, biking and transit are, without a doubt, the most cost effective means of transportation. Walking is free. Biking has a small start-up cost but is thereafter nearly free (some maintenance may be required). The T costs $2.10 and the bus costs $1.60 per ride. Even an unlimited monthly T pass will only run you $75, or a total of $900 for the year. These are all great options and extremely cost effective. They also have the benefit of being better for you (exercise!) and the environment (less emissions!).

But as I’ve said, personal finance is personal, and for one reason or another these options may not make sense for you. If you’re trying to save money though, give your transportation choices some serious thought. There is big money to be saved.

What modes of transportation do you use? What does it cost you? Have you looked at the cost of alternative options?


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