Car sharing: The cheaper alternative to owning a car?

Are your car loan costs too high? Sell it, share it, and save. New car sharing companies are popping up in all capital cities to help consumers cut down on the running costs of owning your own car.

By Jack Han, RateCity.com.au

 

3 April 2009

Everyone wants a car to call their own. You can store your favourite CDs, leave things in the back seat, and if you’re really attached even give it a nickname. But with the rising costs of car ownership, are these pleasures worth the fortune?

Australians are voting ‘No’, with the Australian Bureau of Statistics (ABS) reporting new car sales in February 2009 plummeted 18.6% from Feb 2008.

Sydney drivers and people all over the world are turning to car sharing, a popular and low cost alternative to car ownership and taxis.

Members of car sharing schemes have 24/7 access to a city-wide network of vehicles, and enjoy the convenience of booking a car on the net, or the phone, even as you’re walking towards the car.

After finding the car closest to them, a member will simply collect it from a designated on-street or off-street parking place, rent it for anywhere between an hour to a week, and return it to the same spot.

For a low flat fee, a car share customer does not need to worry about fuel costs, maintaining the vehicle, or car insurance . Instead, they pay for membership costs, hourly rates, and the distance they travel.

The three major car share schemes in Sydney are GoGet, Charter Drive, and Flexicar (see related links below). Each charges different hourly rates, membership costs, plans, and car models. GoGet disperses its car locations across many inner suburbs of Sydney, while Charter Drive and Flexicar concentrate its parking spots in the CBD.

All 3 car sharing services are trying to get people to understand the big costs of owning a car. Let’s look at what these are.

Depreciation

Take Nick as an example. He’s paid $15,000 for a new car. In 5 years time, it will depreciate to about 65%, or $9750. This is costing him $1950 a year.

Insurance

A report from CANSTAR CANNEX calculates the national average insurance premium to be $852.90 (Sep 2007). A number of factors will influence your own personal insurance quote, including your age, car model, street you live in, and the car’s security features. Comparing car insurance online usually saves drivers hundreds of dollars.

Petrol

CommSec‘s chief economist Craig James stated in March that the average household is paying $164.60 a month on petrol. Australian Institute of Petroleum (AIP) data released last week show that average unleaded fuel prices are $1.16 per litre, a big drop from April last year, where prices peaked at $1.47, costing households $207 a month.

Interest

If Nick secured a loan to pay for this new car, paying it off for 5 years at today’s rates of 10% will cost him about $800 a year in interest. Shopping around for some of today’s lowest car loan rates can minimise this.

Maintenance and Service

One of the biggest hassles for car owners is having to pay maintenance costs for their car, such as changing tyres, fixing dings and scratches, fixing their air conditioner and general maintenance such as washing and vacuuming the vehicle. Car sharing dispels these extra worries.

 

Monthly costs of car ownership – not including maintenance and servicing

Overheads

Cost  $

Depreciation

$162.5

Insurance

$71.00

Petrol

$164.40

TOTAL

$397.90

TOTAL with interest

$464.57

Now let’s compare these costs with car renting. GoGet estimates that people driving 3-4 times a week will be paying $350 a month. Charter Drive offers monthly packages from $5 to $250, the latter one being the equivalent of 19 nights of rent.

As we can see, clear savings can be made by switching to car sharing, especially for those thinking about taking out a loan to finance a new car. You won’t have to worry about any of the running costs mentioned above. However, take note that there’s less flexibility in car sharing as you’ll have to plan driving days and times in advance to guarantee a vehicle is available.

Thousands of Australians have already picked up the new trend, and will be reaping the cost savings and benefits. Of course, you’ll be sacrificing the added convenience and luxury of having your own car, so it’s up to you to decide if you would rather have more money for the groceries or the freedom to drive when it suits you best.

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Learn more about car loans

How much is your car worth?

If you already own a car, you could potentially bring down the cost by selling your car in the process. Before that happens, though, you’ll need to find out how much your car is worth.

One of the first places to find this value is to research the value of your current car, giving you an idea of roughly how much it’s worth in its peak condition.

There are plenty of websites that offer a free online valuation, allowing you to enter your car’s make, model, year, badge and description, with results listing a price guide based on both selling your car privately and through a dealership.

Of course, dealerships will try to profit on your trade-in by buying it for less than they can sell it, making it highly unlikely that you’ll get the same price selling a car to a dealer as you would selling a car privately.

However, private car sales can be costly and can take months to sell, making car trading more convenient with a guaranteed return, even if you may not be able to realise the total value of your car’s worth.

Remember that everything is negotiable. If the dealership is offering you less for your trade than you wanted, try to negotiate elsewhere to gain that money back. Start by negotiating on the price of the trade and then ask them if they can give you a further discount on your new car.

How much is my car worth?

If you own a car, it may be something that can help you bring down the cost of your next vehicle purchase through its sale. However, before you can do that you’ll want to find out how much your car is worth.

Your car’s worth can depend upon various aspects, including:

  • Age
  • Condition
  • Model and make

A great starting place for aspects of this includes websites that offer online valuations, allowing you to enter your car’s make, model, year, badge and description, with the listed results displaying a price guide based on both selling your car privately and through a dealership.

Both have pros and cons, as cars can be very profitable, something that will no doubt impact any chance you have to make the most of your car’s value upon sale. Dealerships will try to profit on your trade-in by buying it for less than they can sell it for, so you shouldn’t expect the same price selling a car to a dealer that you would necessarily get selling a car privately.

What is a secured car loan?

A secured car loan is a loan that is connected to a form of security, or collateral. Generally, the security for a car loan is the car itself. If you fail to repay the loan, the lender might seize your car, sell it and then use the proceeds to recover their debt.

What is a car loan?

A car loan, also known as vehicle finance, is money that a consumer borrows with the express purpose of buying a vehicle, such as a car, motorbike, van, truck or campervan. Car loans can be used for both new and used vehicles.

Can I buy a car as a student?

Buying a car is a huge financial decision, and shy of marriage and purchasing a house (or perhaps around the world travels), it may be the biggest financial decision you make. But if you’re looking at your empty pockets, don’t despair! Your dream of owning your own car could become a reality, if you look for and compare the right car loans for your circumstances.

How do you get a car loan?

There are four different ways you can get a car loan. You can go straight to a lender. You can get a finance broker to organise a car loan for you. You can get ‘dealer finance’ – which is when the car dealer organises a car loan for you. Or you can organise your own car loan through a comparison website, like RateCity.

Whichever method you choose, you will need to provide proof of identification, proof of income and proof of savings. So you may be asked for any combination of passport, driver’s licence, bank statements, payslips, tax returns and utility bills. You might also be asked to provide proof of insurance.

Where can I get a student car loan?

Student car loans are not a necessarily a product in and of themselves, but what you may be looking for is a guarantor car loan.

A guarantor car loan has a third-party act as a form of guarantee for your loan application, telling the bank or lender that if you default on your loan, someone will pay the loan repayments.

Going guarantor on a car loan is no new thing, and before internet-based credit scores, guarantor car loan applicants would apply for loans with a guarantor or property owner who could vouch for the person borrowing the loan.

To get a guarantor car loan, you’ll need someone willing to act as a guarantor for your car loan.

What is an unsecured car loan?

An unsecured car loan is a loan that is not connected to a form of security, or collateral. Not all lenders provide unsecured car loans – and if they do, they generally charge higher interest rates for their unsecured car loans than their secured car loans.

What is an LVR?

The LVR, or loan-to-value ratio, is a percentage that expresses the amount of money owed on the car compared to the value of the car. For example, if you take out a $15,000 loan to buy a $20,000 car, you have an LVR of 75 per cent. LVRs change over time as you pay off your loan and your car depreciates in value. For example, two years later you might now owe $10,000 on your car, which might now be worth $15,000. In that case, although there would still be a $5,000 difference between the size of the outstanding loan and the value of the car, the LVR would now be 67 per cent.

Can I get a car loan with poor credit?

Poor credit doesn’t necessarily mean you won’t be able to get finance for your car purchase, though your options aren’t likely to be the same as someone with good credit.

In fact, a number of specialist lenders exist offering car finance for customers with poor credit, able to provide access to bad credit car loans.

However having a history of poor credit will likely mark you as a potential risk to lenders, so your car financing needs could see higher fees and interest rates. Alternatively, consider a secured car loan, which is a type of loan that uses the car you purchase as collateral, reducing the risk.

Other options include getting someone close to act as a guarantor for your car loan, or to talk to a broker about a personalised rate specific to your circumstances.

Should I service my own car?

There are also costs associated with vehicle ownership, such as paying for petrol and the obligatory ongoing maintenance. But should you cut down on costs by servicing your own vehicle?

If you’re considering getting out the tool box, spanner, and grease-laden towel, you need to carefully weigh up the risks and benefits. A trained mechanic will need to complete certain tasks, while you may be perfectly capable to handle other aspects yourself.

If you’re short on time, it may be worth paying for the convenience of a full vehicle service. However if you’re trying to slash your expenses, there are some basic maintenance tasks that you can complete yourself.

You should call a mechanic if you’re unsure about a vehicle maintenance task you’re about to take on. However there are a number of maintenance tasks that you may be able to complete with your own two hands including:

  • Replacing your car battery
  • Changing the oil
  • Replacing worn windscreen wipers
  • Replacing blown fuses

Remember to keep your car’s body in good condition, by washing and applying a protective wax on a regular basis, too.

Always check your car warranty agreement as some new car purchases come with an extended car warranty provided your services are conducted at the vehicle service centre where you purchased the car. In these circumstances, you may find the service fee is capped, alleviating some of the maintenance woes.

What is dealer finance?

Dealer finance is a car loan organised through a car dealer – as opposed to car loans organised by a finance broker or directly by the lender.

How to find a great car loan

Historically, finding a great car loan would require excess research ranging from visiting an excess of websites or making phone calls, but technology has moved on. Using RateCity, Australia’s leading financial comparison service, you can check out great deals from a range of lenders on the one site.

To start, select the amount you want to borrow and the length of the loan, narrowing your search to show just fixed or variable interest rate results.

Once you’ve indicated your search criteria, you’ll see an immediate list of lenders, ranked by interest rate or application fees. You’ll also be able to view the monthly repayment amount for each result, helping you to know what you can afford.

Up to six products can be compared side-by-side, complete with more information about each car loan, giving you more information about your options.

When comparing your car loan options, it’s ideal to keep in mind some points find a great car loan for your needs. Consider the following:

  • Choosing a low interest car loan can reduce costs
  • Selecting an option with low fees and charges is ideal, because these can really add up
  • Be aware of penalties, such as early exit penalties if you pay off the loan sooner than expected
  • Consider the features that best suit your situation

There are many ways to ensure that you get a great car loan. Ultimately, you’ll end up with the best deal by doing your research and selecting the most suitable product for you.

What is the luxury car tax?

The federal government imposes a luxury car tax of 33 per cent on the value of a car above a threshold. As of the 2017-18 financial year, that threshold was $75,526 for fuel-efficient vehicles and $65,094 for other vehicles. So a fuel-efficient car worth $80,000 would be taxed only on the difference between the threshold and the value of the car ($4,474), rather than taxed on the entire $80,000. Similarly, an ordinary car worth $70,000 would be taxed on the $4,906 above the threshold, rather than the entire $70,000. The luxury car tax is paid by dealers that sell or import luxury cars, and also by individuals who import luxury cars.