Car Leasing a Good Option, but not Affordable for Budget Consumers
Last Updated : Feb. 28, 2020, 3:07 p.m.
At a time when most of you are looking to fulfill the dream of car, you are looking around various options to serve the purpose. You plan, start making all the calculations and see how far you are fitting into the ownership of cars from various financing options available. Not everyone would be having the funds or be interested to pay the full price of the car at one go. So, you look for the car loan from lenders like State Bank of India, ICICI Bank, HDFC Bank, Axis Bank, Bank of Baroda, Bank of India, etc. You also check for the interest rate, processing fee, late payment charges and others to calculate the overall ownership cost of the car. You pick one lender and take loan to buy a new car.
You must also be thinking of buying the used car, the option which is gaining increasing adoption among most of the people in India. But there is a catch to it. The point is the higher interest rate of 15-20% on loan fo used cars compared to 9.5-15% on new cars. Higher interest rate will take out higher interest from your pocket. Plus, used cars may not have been maintained properly, triggering massive depreciation of such vehicles in around 3 years. For example- most Sedan cars lose almost 40% of their value in first year itself.
There is one more option i.e. car lease, a concept which is popular overseas but yet to take full flight in India. However, self-employed professionals like doctors, engineers, chartered accountants across India avail the option of car leasing, which typically is the option wherein you can drive a new vehicle without having to pay a large sum of money in form of both cash or loan. All you have to do is to lease a car by paying monthly payments to the company. You will have to return the car once the lease period expires. But the concept has a fair share of advantages and disadvantages, which we will discuss today. Moreover, we will make a cost comparison of both car leasing and car loan.
Advantages of leasing
- One can take car on lease on virtually zero down payment
- You can own a new car for around 3-4 years
- One of the exciting part of car leasing is tax saving. As per Income Tax Law, lease rentals can be treated as expense. Therefore, corporates and companies can buy car on lease and show the rentals as expense to get the tax benefits.
- Enjoy hassle-free transaction of owning a car till the end of lease period
- With warranty being provided till the end of lease period, you can remain tension free if the situation of any repairs cost or major breakdown cost arises
Disadvantages of leasing
- At the end of lease period, you will have to return the car to the leasing company, thus taking away your ownership on the vehicle
- Salaried professionals do not have tax benefits on lease rentals
- Car leasing is highly expensive as you will have to shell out a lot in a period of around 4 years
- Also one needs to be wary of some fine terms and conditions that can vary from model and model. So if you fail to read them carefully, then you may have to deal with unexpected losses.
Car leasing service providers
Car leasing services are provided by Arval India Pvt.Ltd., a BNP Paribas-owned company, Avis India, ORIX Auto Infrastructure Services Ltd., Carzonrent, etc.
Leasing cost of select cars
| Car Model | Monthly Car Rentals (In Rs.) | Total Outflow in 4 Years (In Rs.) |
|---|---|---|
| Maruti Swift | 30K-31K | 14,40,000-14,88,000 |
| Mahindra e20 | 15K-16K | 7,20,000-7,68,000 |
| Ford Ecosport | 45K-48K | 21,60,000-23,04,000 |
Now check the ownership cost of the cars one by one.
Maruti Swift
| Particulars | Cost (In Rs.) |
|---|---|
| Ex-Showroom price (New Delhi) | 4,71,613 |
| RTO | 26,365 |
| Insurance | 17,872 |
| Service Charges | 4,000 |
| On-road price | 5,19,850 |
| Estimated Down Payment | 70,742 |
Table showing loan and EMI of Maruti Swift from select banks
| Bank Name | Min Loan Amount (In Rs.) | Est. Max Loan amount (In Rs.) | Max Tenure (In Years) | Interest Rate | Est.EMI (In Rs.) | Est. Interest Amount (In Rs.) | Est. total amount (Principal+Interest) (In Rs.) |
|---|---|---|---|---|---|---|---|
| SBI | 1 lac | 4 lacs | 7 | 9.85% | 6,610 | 1,55,199 | 5,55,199 |
| ICICI Bank | 1 lac | 3.6 lacs | 7 | 10% | 5,927 | 1,37,868 | 4,99,118 |
| HDFC Bank | 1 lac | 3.4 lacs | 7 | 9.90% | 6,454 | 1,28,804 | 4,71,380 |
| Axis Bank | 1 lac | 4.3 lacs | 5 | 10.25% | 9,111 | 1,16,660 | 5,46,660 |
Note- Total loan amount, EMI, interest, etc calculated on the basis of individual with gross salary of Rs 25,000. With different salary, your liability on the loan will change accordingly.
Mahindra E20
| Particulars | Cost (In Rs.) |
|---|---|
| Ex-Showroom price (New Delhi) | 5,95,657 |
| RTO | 32,826 |
| Insurance | 20,617 |
| On-road price | 6,49,100 |
| Down Payment | 89,349 |
Table showing loan and EMI of Mahindra e20 from select banks
| Bank Name | Min Loan Amount (In Rs.) | Est. Max Loan amount (In Rs.) | Max Tenure (In Years) | Interest Rate | Est.EMI (In Rs.) | Est. Interest Amount (In Rs.) | Est. total amount (Principal+Interest) (In Rs.) |
|---|---|---|---|---|---|---|---|
| SBI | 1 lac | 5.1 lacs | 7 | 9.85% | 8,427 | 1,97,879 | 7,07,879 |
| ICICI Bank | 1 lac | 4.8 lacs | 7 | 10% | 7,969 | 1,89,360 | 6,69,360 |
| HDFC Bank | 1 lac | 4.5 lacs | 7 | 9.90% | 7,447 | 1,75,573 | 6,25,573 |
| Axis Bank | 1 lac | 5 lacs | 5 | 10.25% | 10,685 | 1,41,108 | 6,41,108 |
Note-Total loan amount, EMI, interest, etc calculated on the basis of individual with gross salary of Rs 25,000. With different salary, your liability on the loan will change accordingly.
Ford Ecosport
| Particulars | Cost (In Rs.) |
|---|---|
| Ex-Showroom price (New Delhi) | 6,68,800 |
| RTO | 51,555 |
| Insurance | 17,638 |
| On-road price | 7,37,993 |
| Down Payment | 1,00,320 |
Table showing loan and EMI of Ford Ecosport from select banks
| Bank Name | Min Loan Amount (In Rs.) | Est. Max Loan amount (In Rs.) | Max Tenure (In Years) | Interest Rate | Est.EMI (In Rs.) | Est. Interest Amount (In Rs.) | Est. total amount (Principal+Interest) (In Rs.) |
|---|---|---|---|---|---|---|---|
| SBI | 1 lac | 5.5 lacs | 7 | 9.85% | 9,088 | 2,13,399 | 7,63,399 |
| ICICI Bank | 1 lac | 5 lacs | 7 | 10% | 8,232 | 1,91,488 | 6,93,088 |
| HDFC Bank | 1 lac | 5.4 lacs | 5 | 10.25% | 11,442 | 1,46,520 | 6,89,096 |
| Axis Bank | 1 lac | 6 lacs | 5 | 10.15% | 12,685 | 1,61,100 | 7,61,100 |
Note- Total loan amount, EMI, interest, etc calculated on the basis of individual with gross salary of Rs 25,000. With different salary, your liability on the loan will change accordingly.
From the table, it is clear that the ownership cost of cars on lease is much higher compared to loan from banks. Plus, you will have to return the car to the company if taken on lease. But with car loan, you can own it even after the loan tenure gets over.
( Updated on: 28th October, 2016)
