You just got approved to drive for Uber and/or Lyft and one of the first thoughts that come across your mind is – should I buy a new car to Uber with? Well, I’m going to run some numbers for you so you can get a better idea if making that type of investment is a good idea for your situation or not.
I will tell you right off that bat that this is going to vary from person to person and car to car, so anything written here will be generalizations that I will try to cover as best I can. I’m using Boston as the market for both the cost of the vehicle and how much you make while driving for Uber. Some markets may have cheaper cars, but they will also likely have cheaper rates. Some may be the opposite of that and people are practically giving away cars for some reason. You need to be the final judge whether a decision is right for you based on the information given.
For the sake of this article, I am only going to be talking about brand new cars because the first year depreciation is something that not many people factor in Uber and it’s something you don’t need to think about with buying pre-owned. I am also going to just go with MSRP as my price points because some people will be able to talk the dealer down a bit, but taxes and other fees end up bringing the cost back up anyway.
- Super cheap sedan: Base model Yaris
- $16,000 – 33 mpg – $250/month
- Hybrid: Base model Prius
- $24,000 – 52 mpg – $400/month
- XL Car: Honda Pilot This is in reference to this story
- $40,000 – 24 mpg – $685/month
(estimates using valuepenguin average APR rate at mid to high 600 FICO score of roughly 9% with $2,000 down and 72 months)
Auto insurance is always tricky because the rates vary wildly depending on your area, your car, and your driving history. The average cost is around $700/6 months but considering Uber drivers are charged more plus are more likely to have tickets and accidents due to the fact they drive so much more than regular people, I’ll bump it up to $1000/6 months (which is still on the cheap side, but I don’t want people to think I’m overinflating the numbers to scare anyone). This will average out to $166/month – again, on the low end for Uber drivers
This is another tricky one because fuel prices range from just over $2/gallon in Colorado to $3.25/gallon in California. It’s closer to $2 than $3 in many states, so putting it somewhere in the middle, I am going to go with $2.30/gallon
As we all know, vehicle depreciation is huge as soon as you drive the car off the lot. I am going to use this calculator for my references at a very high depreciation rate due to the mileage you put on a car driving for Uber
Vehicle Value Table
|Year||Yaris Value||Prius Value||Pilot Value|
What we learn from this table is:
- The first year is very painful.
- The Pilot loses nearly the entire cost of the Yaris in value as soon as you drive it off the lot
- After 4 years, the value lost on the Pilot is more than the entire cost of the Prius msrp
- After 4 years, the Yaris loses nearly $12,000 in value and your car is worth barely $5,000 for trade
Again, these are high depreciation rates on the calculator, but the final depreciation rates are likely to be higher due to scratches, dents, way more miles than expected, etc. The Yaris would probably actually barely get you $4,000 if you traded it in after 4 years of Ubering with it.
I’ve often heard people simply overlook depreciation on Uber forums when discussing how much you spend on operating costs. The reason why this is one of the most important hidden expenses is that it’s an actual cash value of your car. If you bought a stock for $10,000 and the market crashed a year later, your stock is only worth $5,000. You can’t get that extra $5,000 back (unless you wait it out and the market rebounds, but that doesn’t happen with cars).
Once you buy a Pilot with plans on selling it 4 years later, you’ve handed over a guarantee to pay $29,538. That averages to $615/month that you’ve committed to spending in order to break even on your purchase when you’re ready to trade it in. If you spend any less, you’re going to owe the difference. Considering your car payment may be closer to $700/month, there is a good chance you’ll still owe a bit after 4 years.
Important takeaway: It’s a vicious circle because you need to drive more to make more money to pay extra on your car, but by driving more, you’re devaluing it at a quicker rate which means you have to drive even more.
Cost Per Mile
Here is the most important thing you need to look at when deciding to buy a new car or not for Uber. How much you’re spending per mile versus how much you’re making per mile.
Using the depreciation table above, here is the rough cost per mile chart based on 50,000 miles a year
I have excluded repair costs because they vary too much to even guess. These numbers are at a pretty good minimum, although for safety purposes, I’d add 5 cents to every mile to be secure. Also, the payment figure is the amount that you’ve paid with your minimum payment ($250 for Yaris for example) over the course of 4 years. Depreciation is then subtracted from that figure and that is how much physical cash that you’ve essentially paid just to rent the car for 4 years (because in reality, that’s all you’re doing when you buy for Uber. You’re renting and hoping to break even before your car shits the bed)
|Cost per mile driving 50,000 miles a year
Note: The Pilot can accept both X and XL. Accepting only XL gets a profit of $1.17 per mile. Any X trip with the Pilot is 18 cents a mile profit!
(Depreciation = The entire devaluation of the car divided by 200,000 miles – 4 years at 50k miles a year)
(Tires = tire cost is one set of tires every 60,000 miles @ $100/tire average)
(Oil cost = $10/quart. 5 quarts per oil change. 10,000-mile intervals with synthetic. $25 per change fee)
(Payment = The total amount of money you paid in cash after 4 years minus depreciation)
(Insurance = $166/month * 48 months. This figure will likely be much higher for some and slightly lower for others)
I tried to keep a lot of math out of this post so I didn’t confuse people. I also feel like I underestimated a lot of costs and left out many smaller costs that add up (windshield wipers, small repairs, etc). One thing this does is give you a rough estimate of how much you are actually spending per mile depending on the type of new car that you drive. What I learned is that if you manage to do 50,000 miles per year every year for four straight years without much trouble, you should earn roughly 40 cents per mile after vehicle costs for a fuel efficient car doing UberX only. For vehicles like the Honda Pilot, you are earning closer to 18 cents a mile every time you do an UberX ride. However, the Honda Pilot allows for UberXL which brings the profit up about $1/mile to around $1.17/mile.
There is a catch, however. Driving this much quickly causes unexpected repairs which increase costs more and more the longer you own it. By the 4th year of running, you are likely having far more repair expenses pop up. If you try to trade your car in before the 4th year is up, you will likely owe upwards of a few thousand dollars to offset the remaining balance.
I know what you’re saying at this point. What the hell did I just read? I have no idea what any of it means! Well, here are some notes:
- If you buy a new car – even the cheapest new car – you can still profit per mile but realize that only around 60% of what Uber pays you is profit
- By the fourth year, you are in much better shape with your car as you’ve just about broken even with the payments:trade-in value.
- If you drive less per year, you actually spend a little more money per mile.
- Running the numbers at 25k miles per year and lowering the depreciation a little, you’re at around a 4 cent difference for the sedans and 8 cent difference for the Pilot
- This is because there is a pretty decent curve until the expected 15k miles a year driving, but it slows down beyond that.
- If you do buy a brand new car, it is highly advised to make double payments which hurt initially but help you later on in life when you are done with Uber and want to get rid of your car that is probably running like crap.
If you do buy a new car and make double payments, your actual monthly expenses including insurance (excluding fuel) are:
- Yaris – $660 / month
- Prius – $960 / month
- Pilot – $1,536 / month
If you are not paying that much toward your car, there is a good chance you will strongly regret your Uber experience after a few years. If you do not think you can cover those amounts, either do not Uber, or buy a much cheaper used car in the range of under $10,000. You want one that you can throw away after 2-3 years of beating on it. A $10,000 loan at all the rates mentioned above would be around $250 for a 3-year period. No need for double payments and insurance may even be cheaper.
Put simply – I strongly advise against purchasing a new car just to Uber, and I certainly would be against anything more than $20,000 should you do make the plunge – even if it’s XL.