Whatever You Do, Don’t Rent a Car Right Now
This is a bad time to buy a new car – even if you can find the car you want, you’ll probably pay more than retail price for it. But this is a very bad time to rent a new car. According to Tyson Jominy , VP of data and analytics at JD Power, it’s actually “an incredibly bad time to rent” and will likely continue to be so for the foreseeable future.
Reducing incentives for new car rentals
In the past, lower monthly payments for rental cars were one of the main selling points for those choosing to lease or buy, but that math is changing. At a time when computer chips were readily available , car leasing companies offered substantial incentives to customers, but with fleet supply plummeting due to problems in the global supply chain, such incentives are rapidly dwindling. According to JD Power , the average leasing company is currently offering about $1,500 in incentives, compared to about $4,000 in pre-pandemic times. But the higher total cost isn’t the only reason why you shouldn’t rent right now.
Less miles for your money
Along with lower benefits, leasing companies are cutting back on the number of miles customers can drive without penalty. A few years ago the industry standard was 12,000 miles per year, but now many leasing companies only offer 10,000 miles . If you exceed your limit, even if only to the previous mile high, you will likely be charged around 30 cents per mile, adding $600 to the rental price, which was probably already more expensive than it would have been by several years ago.
Depreciation and you
The current shortage of purchased cars has led to a sharp increase in the cost of used cars – the price of a US-made car over the past five years is about 30% higher than a year ago. You might think that less depreciation would result in lower lease payments, but leasing companies aren’t cutting rates, and with a widespread car shortage, they don’t have much incentive to get started.
This is how bad the idea of renting a car is compared to buying a new one this year
In this video from Ari Yanessian , a car broker with a ” Negotiating Guide “, it breaks down the rental numbers compared to buying a 2022 Toyota RAV 4, and once you see it in black and white it’s clear just how “strikingly bad » became leasing.
The RAV 4’s MSRP is $35,000 plus fees and taxes. If you finance at Toyota’s 2.49% rate (an incentive that Toyota is offering right now) and only pay taxes and fees, you will have a monthly payment of $621, bringing the total cost to $37,260 (plus taxes) and fees). After five years, the RAV 4 is expected to cost about $21,000 (assuming 40% depreciation) on the open market, so the total cost of ownership over that time period will be about $16,260.
If you instead rented the RAV 4 for 36 months and only listed taxes and fees again, you would be paying $471 per month (assuming $4.68 per annum). In just three years, your rented RAV 4 will cost you $16,956 (plus taxes and fees), after which you’ll have to return it or buy out the lease. In both cases, for about $16,000, you can drive the car for five years if you finance it, or three years if you rent it. “You have two extra years here,” Janesyan explains. “Terrible, terrible idea to rent a car right now.”
Of course, different cars have different resale values, as well as financing rates and incentives, so these numbers won’t apply universally, but the trend is clear.
If you had a time machine
If you were lucky enough to rent a car in 2019, congratulations! You have made a very good decision. But make sure you don’t just return your car at the end of the lease – the average 2019 car value is $7,208 more than its projected residual value, so if you buy your car when the lease is up, it will be a steal. The price difference is so big that some people even sell their rent for a profit.
How long it will be going on?
It is not known how long the car shortage will last. While shortages of computer chips are beginning to ease and car inventories are slowly running out, lagging consumer demand is likely to lead to a shortage of cars on lots through the end of 2022, industry analysts said.