How to Start a Car Rental Business

Your car rental business needs to be grounded in thorough market research.

Even if you consider yourself something of an automotive expert, a hobbyist’s knowledge won’t cut it. You need to know the ins and outs of the car rental market, including the size of your potential customer base, your main competitors, and their strengths and weaknesses. 

You can split this into desk (internet) and field research. The latter could involve customer surveys and interviews, or, even better, visiting competitor businesses and hiring a car.  

Your research will help you choose a promising and profitable niche for your car rental business. This decision can be partly informed by your interests but must be driven by demand. 

For example, unless you’ve got a good unique selling point (USP), you would be unwise to start a new car rental place in the vicinity of an airport that’s already well supplied with similar businesses.  

You could choose from the following car rental niches: 

• Leisure hire: Ideal if you’re located in a popular holiday destination, leisure rental companies hire out vehicles to tourists. This can be great for customers who need a car to give them the freedom to explore for the duration of their stay. 
• Event hire: From weddings to corporate affairs, event hire involves renting out unique or luxury cars to people who want something special, typically for anything from a few hours to a day. These are often limousines, classic cars or supercars.
• Business: Employees arriving in a foreign city for a work trip sometimes need a suitable car to get around in. These will often be cars designed for executive purposes, offering comfort and a professional image.
• Transport and logistics: Sometimes, people just need a vehicle to get them – or their goods – from A to B. The kinds of vehicles rented out by transport and logistics companies are practical and functional, like a moving van. One thing to bear in mind is that, if a customer is renting a car for a single trip from one location to another, you need to be able to offer different pick-up and drop-off locations, which means multiple premises and adds to your costs.
• Premium car hire: Luxury vehicles and supercars are too expensive for the average person to buy outright, but renting them out for a day or two is much more affordable. This type of rental business requires a much larger initial investment and higher levels of insurance. 

Cars are expensive, and you’ll need a fleet to get started. But the vehicles are just one of many costs when starting a car rental business. 

To help you work out how much start-up capital you need, you should create a detailed budget for your car rental business. This can be part of writing your business plan and will be essential for securing funding. 

For a more detailed guide, you can read our article on how to write a business plan.

You should factor the following costs into your car rental business budget: 

• A fleet of cars: You have several options for acquiring your fleet. Leasing cars on a long-term basis from dealerships or manufacturers is common. You could also purchase cars in large quantities directly from a manufacturer, where fleet sales programmes may offer significant discounts for bulk orders. Another option is to buy used but well-maintained cars from auctions. Don’t forget that even with regular maintenance, you’ll still need to periodically sell and replace your fleet. According to the British Vehicle Rental and Leasing Association, rental and leasing companies spend over £30 billion upgrading their fleets each year, and buy 83% of vehicles produced and sold annually in the UK
• Maintenance: Regular service, maintenance and repair (SMR) is essential to keep your cars safe and efficient. It also minimises downtime, maximises time on the road, and keeps customers happy. Some rental companies have an SMR contract with a fleet management company. This involves paying a fixed monthly amount per vehicle to cover tyres, wear and tear, and breakdown, regardless of whether they’re hired. This reduces admin but is not always cost-effective. Instead, you could opt for a pay-as-you-go model, which involves a lot more admin, but means you only pay for necessary repairs
• Premises: Another major cost for your car rental business is your premises, which will need to be large enough and secure enough to store your fleet safely. You could either rent or buy your premises. Renting is more flexible and has a smaller financial commitment, which can be a good option in the uncertain early days, but buying is more stable and can be a good investment in the long run. You should also factor in electricity, heating and water bills for your premises
• Employee salaries: Employee salaries will be a big part of your budget. According to recruiting site Glassdoor, the average salary for a car rental agent in the UK is just shy of £22,000.
• Insurance: You can insure your entire fleet under a rental fleet insurance policy. This should include accidents, wear and tear, and damage caused by renters or third parties, as well as theft and injuries to rental drivers. Fleet insurance policies can also include other essential cover, such as employers’ and public liability, as add-ons, so you can meet all your insurance needs with one provider. Expect to pay anything between £10,000 and £30,000 to insure a fleet of 20 vehicles

For a detailed guide, explore our five-step guide to creating a small business budget.

The next step towards getting on the road is formally registering your car rental business. You’ll also need to choose a business structure, taking time to weigh up the pros and cons of each and considering which structure will work best for you and your business.

As you may need to raise funding to start a car rental business, registering as a limited company might be the most appropriate way to get set up. However, other options, such as being a sole trader or part of a partnership, are possible. If you are unsure, read our guide to choosing a company structure.

» MORE: Should I register as a sole trader or limited company?

The car rental industry is not bound by any statutory regulation. This type of business also doesn’t require a specific licence to operate. 

However, if you have certain hire agreements in place, such as those that would constitute a consumer credit arrangement, you may need to register with the Financial Conduct Authority.

With your budget written and your company structure in place, it’s time to source the funding you’ll need to get your car rental business up and running. 

As you will already know from your research, starting a car rental business is likely to be a capital-intensive process, so you may need to combine various funding options and explore multiple sources of investment. As a car rental business may have high start-up costs, a business loan or grant may be the best way to get the funding you need. However, there are many sources available, so check out NerdWallet’s guide to funding a small business.

Once you have secured the capital, you may need to open a business bank account to keep track of the funds. 

If you are a sole trader – and if your bank allows it – you can continue using your personal bank account for business transactions. However, limited companies and partnerships are legally required to keep their personal and business finances separate. 

Either way, opening a business bank account will make it easier to keep on top of earnings and outgoings throughout the life of your car rental business. 

Effective marketing is informed by in-depth market research. 

Thanks to your research, you should already know who your target car rental customers are – be they tourists, corporate clients or supercar enthusiasts – and you can tailor the channels you use and the nature of your messaging accordingly. 

Setting up an SEO-optimised website and social media channels is an essential first step, which will help people find you online when they’re looking for a car rental. 

Be sure to use lots of specific keywords in your copy, like ‘wedding car hire’ if you’re planning to run a car rental business that caters to weddings. Keeping your website fresh with blog posts about topics relevant to the car rental market is a great way to remain competitive in the search engine rankings. 

Targeted advertising via services such as Google Ads and Facebook Ads is another great option for car rental businesses, as it allows you to be highly specific about the demographics you’re targeting. For example, if you’re renting out supercars, you might target high-net-worth individuals in their 30s and 40s.