Compare Loan EMI vs Lease Rental & Find Cheapest Car Finance
Should you buy or lease a car? Compare car loan EMI vs lease rental to find the cheapest finance option in India
Car Leasing is an alternative way of acquiring a vehicle as compared to traditional car loan or outright purchase. Leasing a car allows you to drive a new car for an agreed duration between 2 to 5 years at an agreed monthly rental.Car leasing is effectively a long-term rental of a brand new car at a monthly payment comparable to car loan EMI. Although buying a car with a bank loan is a usual practice we have been doing for years, let's compare Car Loan vs Leasing to find the cheapest and most suitable finance option for you
Car Leasing - How it Works?
1. Request for a Lease Quote - Select Vehicle, Tenure & Mileage Option and Submit request to get the lease quote
2. Submit Documents - Submit documents depending on employment type (Salaried / Proprietor/ Private / Partnership / Public Company)
3. Credit Check - Credit approval by leasing company based on the documents submitted
4. Lease Agreement Signing - Sign the lease agreement for the leasing company to issue the vehicle purchase order to the dealer
5. Vehicle Delivery - Get a brand new vehicle with zero down-payment and fixed monthly payment including service, maintenance and repair cost. Upgrade to a latest new car every few years.
Car Leasing - How is it Different from Car Loan
Car Lease Rental Vs Car Loan EMI Comparison - Real Life Example
Let's consider the Hyundai Creta 1.5 S Petrol to compare the Lease rental vs EMI.The Hyundai Creta 1.5 S Petrol on-road price is Rs 14,16,341 ( Rs 11,83, 900 - ex-showroom price).
If we talk about the leasing first, the lease rental will cost you Rs 35,572 per month for a tenure of 5 years with annual usage of 15,000 Km. The flat monthly rental includes all the service, maintenance, insurance, tyre, battery change and other charges during the 5 years except for the fuel expenses. If we calculate the sum of payments over the course of 5 years, the total lease payment which the user would be paying is Rs 21,34,320. At the end of lease contract, the user can decide whether to keep the car or return the car. In case of keeping the car, the user has to pay the residual value of the car after 5 years of use and the ownership will be transferred to the user.
If you are a salaried employee eligible for a company car, small business proprietor or a self employed professional like Doctor, Lawyer, you can avail tax savings upto 30% in case of leasing a car. As lease rentals are deducted from your CTC before imposing the tax, you enjoy an increased in-hand salary thanks to the tax savings because of your leased car hence reducing your effective lease rental.
Now, if we talk about buying a car with a loan, It is worth noting that in case of bank loan, the user is only paying the principal amount of the vehicle. The user is supposed to take care of insurance, periodic maintenance, irregular damages, road tax and other expenses as well.
So, If we consider a car loan for a tenure of 5 years with the interest rate of 9% and a 90% of ex-showroom price as the loan amount amounting to Rs 10,65,510 , the initial down payment would be 10% of ex-showroom price plus the RTO, Registration Charges & Insurance amounting to Rs 3,50,831. The user would have to pay a monthly EMI of Rs 22,118 plus insurance, maintenance & service costs. If we calculate the payment over the course of 5 years, the user would have paid Rs 13,27,080 + Rs Rs 3,50,831 = Rs 16,77,911 towards the car loan.
Moreover for a fair comparison, it is important to also consider the other ownership cost for the 5 years which will be approximately Rs 2,00,000 (Insurance Cost) + Rs 50,000 ( Regular Service Cost ) + Rs 85,000 (Tyre & Battery Change Cost) = Rs 3,35,000. These are the approximate ownership costs and may vary according to vehicle condition, driving behavior etc. In Addition to this, we should consider the lost opportunity costs by calculating the expected return over 5 years in case the initial down-payment was invested (e.g. 7 % interest on a fixed deposit) = Rs 1,22,791. Hence the total amount paid by user over the course of 5 years in case of taking the car loan would be Rs 16,77,911 + Rs 3,35,000 + Rs 1,22,791 = Rs 21,35,702
Car Lease vs Car Loan Total 5 Years Cost of Ownership Comparison
After considering the total cost of ownership for both the options over the 5 years tenure, Is leasing a car a cheaper & better option than buying a car with a loan? Ask yourself these 6 questions
Are you planning to keep the new car for less than five years?
Are you concerned about the high insurance, service, maintenance & other running cost of a car during the 5 years of ownership?
Do you drive less than 20,000 km per year?
Do you hate to sell or exchange your used car after 5 years?
Are you eligible for a company car allowing you to save money?
Do you have your own business or are a practising professional e.g. Doctor, CA to be eligible for tax benefits?
The key in deciding whether to lease or buy a car with a loan comes down to four main points: Eligibility, Cost Advantage, Time / Effort Needed and Ownership Experience.
If you have answered “yes” to quite a few of the above 6 questions, leasing a car might be a right option as compared to buying one. Get your free car lease quote today and avail attractive lease deals and offers on new cars.
Leasing a new car is easier than you think. Request for a free non-binding car lease quote from best leasing companies in India with a click or just have questions about how leasing works? Request a call-back or email us at email@example.com for our leasing specialists to help and answer your questions
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