Comparing costs: Is a used car more cost-effective than a new one in the UAE?
Cost analysis of new versus used cars, and knowing which option helps save more money
Dubai: Choosing between buying a new or used car may not be as simple as it seems. Find out what matters beyond simple sticker price.
Also in order to choose between the two options, it helps to know that the cost of a car doesn’t end when you drive it off the lot.
Globally, research shows the average person owns 10 cars in a lifetime, each costing an average of Dh100,000 in the UAE – and analysis further indicates that if each of those cars was 3 years old, instead of new, you could save nearly Dh330,000 during your lifetime.
Dubai has over 500 cars for every 1,000 people, implying every second person in the emirate has a vehicle to his or her name, which is the highest in the region and one of the highest in the world.
How much does it cost to buy a car in the UAE?
According to statistics, most commonly driven UAE car is a 2018-model budget buy. Here’s a cost-by-cost breakdown analysis.
Illustration: Average cost of buying a budget car
Total cost (based on market prices): Dh70,900 Down payment: 20 per cent down payment estimates to about Dh14,180 Monthly payment: Approximately Dh980 for a five-year payback plan Extra car costs: • Dh3,000 to Dh4,000 for comprehensive insurance • Dh1,000 in registration related costs such as the annual inspection fees • Dh1,000 for cleaning, service, and maintenance costs • Dh4,000 to Dh5,000 in Salik and fuel costs assuming the current per liter Total yearly cost: Dh20,800 (excluding the down-payment)
What are the benefits of buying a new car?
Paying less over the long term: Monthly rent payments are generally more expensive than monthly car loan payments. But then once you are done with the payments, you are officially driving a car for years after your pay for it. The longer you drive it, the less it costs.
You have the option to sell it: As a car owner, if you are ever stuck financially and you need to trade it in or sell it, you can do so at any time.
Discount the depreciation if you buy a used car: Depending on the vehicle, 20 per cent to 40 per cent of its depreciation can occur within the first few years. So when you buy a 2- to 3-year-old-vehicle, you get the advantage of paying a price that reflects a substantial depreciation discount.
How about renting a car?
Renting a car has less complicated costs primarily because registration, service and maintenance costs are taken care of. Here’s a cost-by-cost breakdown analysis.
Illustration: Cost of renting a basic economy sedan
Monthly payment: Dh2,000-Dh3,000 due to seasonal peaks and slumps and most agencies provide discounts on longer term commitments Extra costs: Dh4,000-5,000 in Salik and fuel costs which are similar to that of owning a car. Total yearly cost: Dh40,500
What are the perks of renting a car?
No depreciation losses: A big advantage of using a rental car compared to owning one’s own car is there are no depreciation losses when renting a car.
No extra Insurance required: If the person renting a vehicle already has auto insurance, most policies will extend an equivalent coverage to the rental car without any additional fees.
No financial commitment: Anytime you want to leave the country, travel, or notice that you have a month where you don’t need to commute, you can easily save Dh2,000 to Dh3,000 by just stopping the rental
There’s a third option: How about hailing a car?
You own no car and you want to get around the city. Chauffeured rides are the simplest in terms of cost calculations and risk factors such as fines or accidents.
Let's assume you hail a cab or order a car for Dh40 to Dh50 one way, which makes your return trip approximately Dh100 a day, five days a week.
Illustration: Cost of hailing a car
Monthly Payment: Dh2,500 Extra car costs: Dh0 Total yearly cost: Dh24,000
Final verdict: What is the best course of action?
Over the course of the year, it would seem owning a car is the right financial choice. However, for the economics to play out well, it's important to keep these key cost drivers in mind:
It is recommended to buy a used car as a new car has a much steeper depreciation in the first year, which is the largest cost associated with owning a car.
The car must be in good condition to avoid unanticipated repairs, which could turn out to be costly.
The timeframe needs to be close to a year or more. Should you only need a car for a few months, owning becomes costlier.
