Buying An Uber Car Using An Auto Loan Vs. Renting One

If you are an Uber driver or thinking of getting into the business of ridesharing, you probably know the need for personal freedom, which can rarely be achieved working under someone. You will need to own a car or, at minimum, take a route that offers more flexibility and lets you choose when and how much you work. 

The most flexible route is buying a car in cash, but not everyone can afford it or wants to invest a lot of money in one illiquid asset.

Two alternatives available to you are Uber car financing and renting a car. Both these options can offer more freedom than working as an employed driver. But which option suits you best, and how do you decide between the two? 

This article will examine the difference between renting a vehicle for Uber and taking an auto loan to purchase a vehicle to help you decide which route to take.

Read Also: What You Need to Know About Uber Car Loans in Kenya

Buy Uber Car Using An AutoLoan

There are multiple ways to buy a car and start your rideshare business. The most straightforward is to do it in cash if you have readily available money. If you don't, you can explore alternatives like car financing through a lender, hire purchase from a car showroom, or lease-to-own arrangement with a car dealership.

However, all those options typically require you to pay a hefty downpayment and have good credit ratings, proof of income, and a guarantor, among other requirements that can lock out some prospective rideshare drivers. 

This is where Uber auto loans come in. 

These auto loans are tailor-made for individuals looking to start a ridesharing business but don’t qualify for traditional car financing. This type of loan is typically offered by microfinance institutions and Uber lending partners.

What makes Uber car loans different from traditional car financing is that you can use the money you earn driving to pay for your Uber auto loan.

The process involves securing an auto loan from lenders who specialise in rideshare loans. After you’ve been approved, they will finance your car purchase, and you can start your carpooling business.

Throughout the loan tenure, you will be required to make regular repayments as stipulated in your loan agreement. The car will become yours after you finish paying the auto loan plus interest.

Now that you know how the process works, should you take one? Let's explore the pros and cons.

Read Also: Is Taking a Loan to Buy a Car Worth it? The Pros and Cons

Advantages of Using An Uber Auto Loan

1. Equity Building: With each loan payment, you're building equity in the vehicle, and eventually, you will own the car. This is unlike renting, where your payments don't serve you in the long run.
2. More Control Over Your Business: With an Uber Auto Loan, you just have to meet the minimum monthly repayment. Otherwise, you will have control over how many hours you work, when to work, and you won’t be answering to anyone. 
3. Personal Use: With an Uber car loan, you can use it for personal purposes outside of ridesharing, giving you greater utility and control over its use. Car rental might impose some restrictions on how you can and can’t use the car. 
4. Higher Earning in The Long-term: You will likely make more money than an employed/rental driver when you finish paying off the loan and the car becomes yours. 
5. You Can Improve Your Credit Score: If you make loan repayments as required and avoid default or repossession, your CRB ratings can increase. This can help you qualify for a loan to expand your business and buy other cars in the future.

Disadvantages of Using An Uber Auto Loan

1. Down Payment and Monthly Installments: Purchasing a vehicle through an Uber loan typically requires a down payment, as most lenders don’t offer 100% financing. You also need to make monthly loan payments, which can be a financial burden when there’s a low demand for rides.
2. Expensive in the long term: Buying a car via an auto loan typically costs more than other financing methods when you factor in interest and other loan costs.
3. Resale Value: The value of your vehicle will depreciate over time, and you may not recoup your full investment when you decide to sell it to avoid default or for other reasons. 
4. Depreciation Risk: Vehicles typically lose value rapidly. This can potentially result in negative equity, where you owe more on the loan than the vehicle is worth.
5. Responsibility: You are responsible for all maintenance and repair costs, which can be substantial over the long term.

Read Also: FULL GUIDE: The Process of Car Financing in Kenya 

Renting a Car For Uber Business 

If you’d like to get started as an Uber driver, not having a car (or the right car) can be an obstacle. Not everyone can afford to go out and buy a car, especially when you’re low on cash, don't meet the eligibility of Uber auto loans, or don't want debt. Some drivers might also find it hard to find someone to employ them.

Ridesharing companies like Uber understand this is a struggle many prospective drivers face. For that reason, they have car rental programs where they partner with third-party companies to offer renting and leasing services to drivers. 

This option basically allows you to start a rideshare business without owning a car. For example, if you choose Uber, you will need to create an account as a driver and pass eligibility requirements. Next, you will go to the Uber marketplace and pick a car from one of the rental partners.

These partners will evaluate your eligibility and give you a car after you agree to their terms and conditions.

There are typically two types of car rental.

One is the traditional one with low or no upfront costs and no long-term contracts. Once you are approved, you will be given a car to start your carpooling business. You will be required to make weekly/monthly payments for as long as you have the vehicle. You can return the car or renew your contract at the end of the rental period.

The second one involves rent-to-own. You will buy a car under the drive-to-own framework where you will steadily work towards owning the vehicle by making regular weekly or monthly payments, alongside additional leasing fees. At the end of the agreed-upon term, the ownership of the vehicle is transferred to you. Depending on your agreement, you might have to pay a residual fee. 

The second option is typically more expensive, but you will have a car at the end of the contract.

Advantages of Renting a Car for Uber 

1. Lower Cost Entry: Renting a car typically requires a smaller upfront investment than purchasing a vehicle or taking an Uber car loan and paying a downpayment. 
2. No Depreciation: You don't have to worry about the vehicle losing its value due to wear and tear as you can change or upgrade it. Additionally, you don’t have to worry about resale value. 
3. It Pays for Itself: Most companies typically charge a fee that comes directly from your Uber earnings, so you’ll just need to get enough work to cover the cost of the fee.
4. Less Costs: Rental cars are typically well-maintained and insured, and the rental agency handles servicing and repairs depending on your contract. You will also not be paying any interest or other loan costs. This can lower your expenses and increase your profit.
5. Predictable Expenses: Rental fees typically include maintenance and insurance costs, making it easier to budget for your rideshare business since you won't be hit with unexpected repair bills.

Disadvantages of  Renting a Car for Uber

1. No Ownership Benefits: You won't benefit from any potential long-term ownership gains, such as building equity or using it for non-ridesharing purposes.
2. Limited Control: When renting a vehicle, you have less control over how you can use the car. You must adhere to the rental company's maintenance schedule, and customization options may be limited. You may also need to follow specific rules and restrictions the rental agreement imposes.
3. Limited job security: The rental partner can terminate your contract and take back their car, preventing you from making money.
4. Lack of opportunities: The Uber car rental program is only available in Nairobi and Mombasa.

Read Also: Factors to Consider When Choosing the Right Car for Your Lifestyle

Factors To Consider When Deciding 

1. Monthly Costs: Owning a car through an auto loan involves monthly payments toward the loan principal and interest. While these payments build equity, they can be higher than rental fees, which tend to be lower on a month-to-month basis, making it a more affordable short-term option. However, rental costs don't contribute to vehicle ownership.

2. Total Cost Involved: Owning a car through an auto loan involves paying many upfront costs, including commitment fees, loan processing fees, monthly payments toward the loan principal, and interest. Additionally, you will need to pay for other costs that come with ownership. Renting a car takes away many of the costs and hassles of auto loans and owning your own vehicle. The rental company will be responsible for insurance, repairs, and maintenance, as they are typically included in the rental fee.

3. Long-term Commitment: If you want to invest in ridesharing as a long-term income source, a route that ensures vehicle ownership may align better with your goals. However, if you want to dip your toes before committing or consider it a part-time job as you search for greener pastures, renting offers more flexibility as you don't have to go into debt and risk your finances.

4. Personal Suitability: If you prefer a long-term investment, desire ownership control, and have the means to manage ownership costs, an auto loan may be suitable for you. However, renting will make more sense if you want more flexibility, lower costs, and fewer responsibilities. 

WRAPPING UP

When it comes to deciding between buying an Uber car through an auto loan or renting one, make research your best friend. This will ensure you carefully evaluate all factors involved, balance the pros against the cons, and help you make a well-informed choice that aligns with your financial goals and circumstances.

Remember that different lenders and rental providers offer various terms and eligibility requirements. It's essential to diligently compare these offers to find the best fit for your needs. 

Finally, whether you opt for an auto loan or rental, be prepared to put in extra hours to meet minimum repayments or rental fees while making a profit. Falling short on these financial commitments could jeopardise your ownership or rental agreement.