Thinking of buying a second car?

Thinking of buying a second car?

So, you’ve been wondering whether to buy a second car and want to work out the most cost effective way to do it? Like most things, it’s not always straightforward. Working out the best option depends on getting out the calculator and crunching the numbers. But there are also some alternatives to purchasing a second car that may surprise you. While traditional car hire is expensive, car sharing is a cost effective method of having a second vehicle when you need one, while avoiding all the commitment and risks of purchasing. And on price, car sharing is competitive with purchasing a second car.

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Reasons for buying a second car

There are a few different reasons why people start thinking about a second car purchase. Most relate to a change in circumstances, for example, a new job that requires a longer commute, or two people in a household requiring use of a car at the same time.

In the past, if cost was a factor and public transport was not feasible, buying a second car would be the only option. But now, with the arrival of affordable peer to peer car sharing in Australia, there are more options for affordable commuting.

Peer to peer car sharing provides more options for affordable commuting.

How do I calculate the cost of a second car?

Calculating the cost of purchasing a second car involves a few different variables, and understanding how those costs vary based on the type of car you drive. We’ve summarised some key costs you’ll need to use when you start comparing.

Cost of fuel: not all vehicles use the same amount of fuel. Some are more efficient than others. Large four wheel drives and performance cars are often very heavy petrol guzzlers and not an ideal choice for everyday commuting. Fuel economy is recorded as the number of litres per 100 kilometres. An example of a fuel efficient car is the Kia Rio, which has a fuel economy rating of 5.4-6 L/100km.

Servicing and maintenance:  A car should be serviced every six months or 10,000 kilometres Some cars cost more than others to service. Generally the cheaper the car, the cheaper it is to service, but of course this also depends on the age and condition of the car. Replacing tyres on a large Toyota Landcruiser will be significantly more expensive than replacing tyres on a small Toyota Corolla.

Registration and insurance: All cars need to be registered and insured. The cost of registering and insuring a vehicle depends on the type and age of the vehicle, where you live and your driving history. A larger, newer and more expensive car, will generally cost more to insure.

Purchase price or loan repayments: Determining the cost of a vehicle includes the annual purchase price or loan repayments.

Depreciation: All cars lose value over time, with the cost being most expensive for newer models. Roughly speaking, you can expect a brand new car to lose around 25 - 50% of its value in the first three year of ownership.

To make calculating the costs associated with a new car easier, The RACV publishes an annual car running costs calculator. This is a great place to compare the costs of different sized vehicles all in one place.

Should I buy a second car or use car sharing?

Avoiding unnecessary costs is a priority for most people looking for a convenient form of transport. That’s why the type of car you drive can make a big impact. While you can’t do much about the number of kilometres you have to travel, if you can drive a fuel efficient car, you will keep fuel costs low. The same goes for servicing. Commuting in a car with lower servicing costs is preferable.

To find out whether your best option is to buy a second car or use an alternative option like car sharing, you will need to crunch the numbers first and see. And that’s what we’ve done below, using two very different scenarios. As you’ll see, buying a new car is not always the best option.

Each year the RACV publishes the most fuel efficient and cheapest new cars in a range of size categories. In 2019, the RACV valued the Kia Rio as the cheapest ‘Light’ car on the market. In each of the examples below, the Kia Rio has been chosen as the ‘second car’ because of its fuel efficiency and low servicing costs.

Scenario 1: Mandy & Jay

“We need a second car to commute a few times per week”

Mandy and Jay have one car, which Jay uses to commute to work most days. Mandy just got a part time contract for eight months and will need to commute three days per week. She will be travelling about 66 kilometres each day.

Option 1: Buying a Kia Rio

We used RACV data to calculate the weekly running costs for Mandy on purchasing a fuel efficient and economical new Kia Rio and travelling 200 kilometres per week.

Mandy and Jay would be up for an extra $104.23 per week if they were to purchase a Kia Rio.

Buying a Kia Rio

Standing Costs* (per week)    $77.71         Running Costs* (per km)    $0.13         Total Cost of New Car     $104.23 per week

*standing costs include repayments, insurance, registration and depreciation. Running costs include fuel, servicing and tyres.

Option 2: Car sharing

It is not certain whether Mandy’s contract will continue beyond eight months, so she is reluctant to commit to a car purchase for such a short period of time. Another option is to car share. Car sharing provides the greatest flexibility. There’s no need to commit to a car purchase or secure finance. There’s no registration or insurance to pay (insurance is included when you car share) and there are no servicing costs. If the car needs servicing it’s not Mandy’s responsibility. Mandy and Jay live in a small townhouse and only have off street parking for one car, so if they choose to use car sharing they don’t need to worry about where to park their new car.

But how much will it cost? If Mandy uses Car Next Door to rent a Kia Rio, she will pay $21.25 per day, plus she’ll pay for the number of kilometres she travels at 33 cents per kilometre. If she travels three times per week, she’ll pay $129.75 to commute to work.

Car sharing with Car Next Door

Day Rate (per day)    $21.25*        Petrol (per km)    $0.33*        Total cost of car sharing    $129.75 per week

*Car owners nominate their own rates, so rates may vary.

While renting a car each day with Car Next Door costs 24 percent more, because Mandy is on a contract and working part time, car sharing is a much better option. The 24 percent more she pays offsets the five year commitment she would need to make for a new car purchase, and the fact that there is no safe location to park the car off the street. Car sharing allows Mandy to rent a car only when she needs one. If she has to work from home one day, her weekly costs will be even less.

Scenario 2: Jon

“I don’t want to use my new car to commute to work.”

A few months ago, Jon upgraded and got himself a new Jeep Grand Cherokee. At the time, he didn’t have to do many kilometres because he caught the train to work. Jon uses the car mostly on the weekend - doing about 100 kilometres.

Last week, Jon got a new job, which doesn’t have public transport options. Jon’s dilemma is whether to use his nice new car to drive an extra 500 kilometres, five days a week, or to get a second car - which is more fuel efficient, cheaper to purchase and has smaller depreciation costs.

Option 1: Commuting in his Jeep Grand Cherokee

When Jon just uses his Jeep on the weekend, the weekly cost is $237.61. This includes both depreciation and running costs.

If Jon uses his Jeep to do both weekend driving plus the new weekly work kilometres it costs him $357.61 and adds $120 to his weekly costs for the car.

Commuting in Jeep Grand Cherokee

Standing Costs* (per week)    $213.61        Running Costs* (per km)    $0.24        Total Cost of New Car    $357.61 per week

*standing costs include repayments, insurance, registration and depreciation. Running costs include fuel, servicing and tyres.

If a second car can cost less than this increase, Jon will consider investing in a new car.

Option 2: Buying a Kia Rio as a second car to commute to work

Jon wants to reduce the depreciation on his Jeep as much as he can, so buying an inexpensive and fuel efficient car to travel to work each day is important.

We used RACV data to calculate the weekly running costs for Jon on purchasing a fuel efficient and economical Kia Rio and travelling 500 kilometres per week.

The cost of commuting in a Kia Rio would cost Jon $142.71 per week - 19 percent or $22.71 more per week than commuting in the Jeep.

Buying a Kia Rio

Standing Costs* (per week)    $77.71         Running Costs* (per km)    $0.13         Total Cost of New Car     $142.71 per week

*standing costs include repayments, insurance, registration and depreciation. Running costs include fuel, servicing and tyres.

The more kilometres he travels to work, the smaller this difference ends up being. In fact, if Jon was to travel 712 kilometres per week to work, the cost of driving the Jeep versus the cost of the second car would be exactly the same.

In this situation, buying a second car doesn’t save Jon any money. But what if Jon was to consider car sharing?

Option 3: Car sharing

If Jon was to sell his Jeep and buy a fuel efficient Kia Rio to do all the grunt work of commuting to work, he could rent a Jeep Cherokee or similar car on the weekends and avoid all the big expenses he incurs on his car. Jon could still enjoy driving a luxury vehicle on the weekend without any of the responsibility of expensive servicing or worry about depreciation.

Here’s how the sums work:

As we saw above, if Jon bought an economical car, like a Kia Rio to commute to work, it would cost him $142.71 per week.

If he rented a large, sporty SUV from Car Next Door to use on the weekend, it would cost around $90.

Car sharing with Car Next Door

Day Rate (per day)    $45.95*        Petrol (per km)    $0.45*        Total cost of car sharing    $90 per week

*Car owners nominate their own rates, so rates may vary.

In total costs, if Jon rents a Jeep through car sharing and buys a Kia Rio to commute the 500 kilometres to work, his total travel costs are reduced to $232.71. And if Jon doesn’t travel each weekend, his expenses are even less. This is the most cost effective option for Jon’s situation.

Total travel costs

Buying a Kia Rio & Commuting to work    $142.71 per week        Renting an SUV on the weekend from Car Next Door    $90.00 per week        Total Cost of Travel    $232.71 per week

Here’s a summary of the three options:

Cost comparison of Jon’s travel options

Option 1    Using his Jeep Cherokee for all driving    $357.61        Option 2    Buying a Kia Rio to commute and keeping his Jeep    $380.32        Option 3    Buying a Kia Rio to commute and using car sharing to rent a Jeep    $232.71

Option 4: What if Jon was to rent out his Jeep with Car Next Door?

There is a fourth option for Jon, however, that would allow him to keep his Jeep and offset the cost of buying the second car to commute to work.

Jon could rent out his Jeep with Car Next Door during the week and start earning income.

With Car Next Door Jon can nominate an hour and day rate for his Jeep and choose the days he would like to have it available. Jon doesn’t need to worry about meeting people or exchanging keys. Users access the keys from a safe, contactless key box.

Because Jon is concerned about depreciation on his Jeep, he may prefer to limit the time he rents it out, but even renting it out a few days per month would offset the increased cost of buying a second car for work. Rental rates with Car Next Door start from $25 per day and $5 per hour, and there’s also a charge for the number of kilometres travelled - all of which Jon gets in his hand.

The verdict - buying a second car or car sharing?

Working out whether or not to buy a second car can be complicated and requires some financial calculations on various scenarios to find the best one. As we’ve seen, in some situations purchasing a second vehicle is not always the best option.

Buying a second car is a commitment. Not only do you have the financial responsibility of repayments, insurance, registration and regular servicing - even when you aren’t driving it - but there are other hassles as well. Your car needs to be parked somewhere when you’re not using it. Cars can suffer unforeseen and expensive mechanical problems, and there’s always a risk you’ll be unlucky and buy a lemon! Car sharing avoids all these risks. You simply pay for your booking time and someone else takes care of the rest.

Car sharing is the best choice for a second car in situations where you don’t need to commute every day, or for short periods of time, where buying a new car makes no sense. As we saw in the last example, using car sharing can lead to significant savings and can work to your advantage in some really surprising situations. For Jon, choosing to use car sharing gets him out of a very expensive financial position, allowing him to save more money and keep driving a Jeep when he wants to.

Car sharing can be a much better option, financially, than buying a second car

We hope we’ve provided some helpful tips and food for thought, for anyone who is thinking about buying a second car. Every situation is different, but before you rush into buying a second car, make sure to crunch the numbers first. Using a car sharing platform to rent a second car, or renting out your own car to offset increased costs, is sometimes the best solution when you need a second vehicle.

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