Why are car rentals so expensive?

Think about the last time you went on a vacation or business trip that required you to drive once you reached your destination. Alternatively, maybe you didn’t fly somewhere, but you did need a car for a long-distance road trip. Did you rent a car? If so, how much was it?

If you’re shaking your fist at how much it costs to rent a car these days (for nearly any reason), you’re not alone. Like almost everything else travel-related, car rental prices are higher than they used to be. But why is that? And more importantly, are there any alternatives to renting a car that still get you to your destination? 

Car rental prices over the years

When you look at data from the Consumer Price Index (CPI) that relates explicitly to car and truck rental, you can see how expensive renting a vehicle is these days. In August 2018, car and truck rental prices hovered around $135. After demand cratered during the COVID-19 pandemic, many traditional rental companies sold off part of their fleet while keeping their rental prices low ($96.61 in May 2020).

Of course, once travel restrictions loosened and more places opened back up post-pandemic, demand for rental cars spiked, but this time with minimal inventory to satisfy it. That’s how we ended up with a five-year high cost of $236.80.

Things have mostly leveled out since then, but it still costs significantly more ($193.71 in August 2023) to rent a vehicle today than five years ago. That’s a nearly 40 percent increase over the past half-decade.

Why is renting a car so expensive?

Now that we know that renting a car is significantly more expensive than it was five years ago, let’s talk about why. It’s not just one thing that makes renting a car cost more, but a combination of factors. Here are six reasons why car rentals are so expensive.  

1. The COVID-19 pandemic

As we mentioned above, the COVID-19 pandemic did a lot to raise car rental prices, although not in the way you might expect. It’s true that fewer people rented vehicles during the height of the pandemic. To maintain their business, rental car companies sold off portions of their fleets. That wouldn’t necessarily be a terrible thing, except for…

2. Supply and demand

When travel restrictions started to ease in 2021, rental car companies found themselves in a pickle. They had to deal with an increase in consumer demand that they couldn’t meet due to their now significantly smaller fleets. And even as demand surged, rental car companies couldn’t restock their inventory fast enough.

Why? Because of a sudden increase in competition among car buyers. Thanks to manufacturer shortages for things like semiconductors and chips and other vehicle components, new vehicle production slowed down. That meant fewer new vehicles rolling off assembly lines for anyone — consumers or rental companies — to purchase. Combine that with the increasing pressure on the used car market, and that squeezes vehicle supply for anyone wanting to buy a car.

3. Insurance costs

There are two ways to look at insurance costs.

For one, every rental company must pay for insurance on each vehicle in their fleet. Insuring hundreds or thousands of cars is an expensive proposition. That money must come from somewhere, and there’s a good chance it’ll end up as a line item on your rental bill.

But insurance costs could also refer to money that you pay, such as for additional coverage that the rental company offers, beyond what is already covered by the rental agreement. If you do opt in, expect a hefty fee. More often than not, your existing car insurance policy will offer some protection. For questions about whether your personal auto policy or credit card policy may apply, please contact your insurance provider or a licensed insurance agent.

4. Location

Believe it or not, where you rent your car can impact what you pay for a rental just as much as the type of vehicle itself. Renting a car for a week at the airport costs as much as 26% more than taking a cab or Uber to a suburban office. Why? Because rental car companies with airport kiosks know you need access to a vehicle ASAP and can charge you more. If you’re searching for car rentals in Chicago, you could save money by looking at pick-up locations away from the airport.

5. Depreciation and maintenance

Rental car companies don’t just have to worry about buying cars for their fleets. They must maintain those vehicles, too. Depreciation takes a big chunk out of the value of a car, as do maintenance costs and repairs. All those miles driven impact a vehicle’s reliability, and rental companies that can’t find new replacements have to keep their existing cars on the road longer.

6. Staffing costs

Hiring people to run a car rental kiosk or office costs money. These employees manage reservations, clean and maintain the vehicles and offer the occasional customer service resolution. Those salaries come from somewhere; increasing labor costs contribute to the overall cost of renting a car.

Alternatives to car rentals

If you’re exhausted trying to shop for an affordable rental car for your next trip, there’s no need to despair. Depending on your destination, there may be other options available. You could shop around for the best deal or skip renting entirely and rely on public transit and rideshares.

Our favorite alternative to expensive car rentals is to use Avail car sharing to reserve your next vehicle. Avail is a peer-to-peer car sharing company that lets you book a car online for pick-up in convenient downtown and neighborhood locations in Chicago and Denver. You could find car rentals in Chicago starting at $55 a day or car rentals in Denver around $40 per day. 

So how does Avail work?

You choose your location and the type of vehicle you need and reserve it. At your designated pick-up time, stop by the lot and grab the keys from a self-service key box, with no human interaction required. At the end of your booking period, return the car to its original location and drop off the keys. There’s no haggling on price or additional up-charges for adding a second driver. And because Avail offers Allstate insurance coverage and 24/7 roadside assistance, you know you’re ready for anything on the road.

If you’re tired of paying too much for rental cars for your next business trip, vacation or road trip, start car sharing with Avail. Find your nearest location and reserve a car today.

Car rental price FAQs

Why are car rentals so expensive right now in 2023?

Car rentals cost more than they did a few years ago due to many different factors, but primarily because of supply chain issues related to the COVID-19 pandemic. As demand for rental cars fell, rental car companies sold segments of their fleets to stay in business during the lean times. When demand bounced back, many companies no longer had the vehicles to meet it, and they couldn’t buy new vehicles due to supply chain issues for car components, like semiconductors. This shift makes a big difference when you’re comparing car sharing vs. car rental prices and allows for better deals with car sharing companies.

Why are one-way car rentals more expensive?

One-way car rentals cost more than round-trip options for many different reasons. For one, it creates an imbalance of vehicles at rental car pick-up locations. If more people rent a car one-way from Location A and take it to Location B, then the company might have fewer cars in the original location than they need.

If a rental company wants to return a vehicle to its point of origin, they’ll have to pay for fuel, labor and potentially towing. Those expenses are passed onto the renter, sometimes as what’s called a drop fee. Finally, market factors could play a role: If more people want one-way rentals and few companies offer them, then the ones that do can charge a premium.

Before reserving a vehicle, research and look at price comparisons to help avoid one-way car rental fees.

What are alternatives to expensive car rentals?

Alternatives to expensive car rentals include using walking, biking, public transit, hiring rideshares and using a car sharing service like Avail to save money and drive yourself around when you need to.