Car Lease Vs. Car Loan: Which One Is Right For You?

By BankBazaar | June 20, 2019

The young, salaried class is always looking for something new and Car Lease is an option especially for this segment. Here’s how it stands against a Car Loan. 

Car Loan Vs Car Lease Which To Pick_

For the young, salaried class, life is all about change. They want the best of the season – be it phone, vacation, gadgets or clothes. Can cars be far behind? That’s why the concept of Car Lease has become popular. This is catching up quickly and might overtake Car Loans in the coming years. 

Additional Reading: Top Indian Finance Trends- Women Taking Bigger Home Loans Than Men, Paperless Loan Approvals & More 

What’s A Car Lease? 

Want to own a car but don’t want to get stuck with it for years? Then, a Car Lease is just right for you. You can choose any brand-new car you want, make monthly payments for using it, and at the end of the Car Lease term, you can either buy the car or return it. No hassles of down payment or maintenance. 

In simple terms, a Car Lease helps you to get a brand-new car, use it and return it, or if you love it, you can buy it. Now, if that isn’t a great option, we don’t know what is. 

How Is It Different From A Car Loan? 

When you get a Car Loan, you have to make a down payment. This is because very few lenders consider the on-road price of the car. Most lenders fund only up to 100% of the ex-showroom price and this doesn’t cover accessories for your car. So, if your car’s on-road price is Rs. 9 lakhs and the ex-showroom price is Rs. 7 lakhs, you have to pay Rs. 2 lakhs from your pocket. 

Another point is that even though you buy the car, you don’t actually own the car. Your car is hypothecated to the lender until you repay the loan. You will have to take care of the maintenance of the car, pay for the insurance and pay for the cost of repairs, even if it isn’t in your name yet. 

Additional Reading: Car Loan: Top 5 Frequently Answered Questions 

What Are The Advantages Of Leasing? 

One of the main advantages is the cost of getting the car. The monthly payments for Car Lease work to be far cheaper than those for Car Loans. Let’s take an example. 

You want the Mahindra XUV500 W5. The on-road price of the car is Rs. 11,80,000. If you take a 4-year loan at 9.5%, your EMI will work out to Rs. 41,076. The total interest payment for the 4 years will be Rs. 3.36 lakhs. So, the total cost of owning the car comes to Rs. 19.71 lakhs, without including processing fees, insurance or maintenance costs. 

What if you take a Car Lease? Since car leasing follows the pay for usage model, you only pay for the period during which you use the car. Here, the period of usage is pre-determined and agreed upon by the lessor as well as the lessee. Once the usage period is over, you can surrender the vehicle to the owner and stop paying your instalments. As a car owner, you will typically spend a fortune on maintenance costs. When you lease a vehicle, the maintenance of the vehicle is done by the company that owns the vehicle. You don’t have to spend anything extra on regular vehicle maintenance and repairs. 

How Much Do You Actually Save? 

Here’s the data (based on costs as of June 2019). 

Car Loan

Car Lease

After the lease is over Return The Car

Buy The Car

The on-road price of the car

Rs. 16.35 lakhs

Monthly payments

Rs. 41,071 Rs. 29,000 Rs. 29,000
Interest paid Rs. 3,36,000

Insurance

Rs. 72,500 Rs. 72,500

Rs. 72,500

Cost of owning the car (without insurance)

Rs. 19.71 lakhs

Cost of owning the car (with insurance) Rs. 20.46 lakhs Rs. 16.82 lakhs Rs. 19.34 lakhs

Maintenance Cost

Rs. 1 lakh

Cost of owning the car (with insurance and maintenance cost)

Rs. 21.46 lakhs Rs. 16.82 lakhs

Rs. 19.34 lakhs

Savings Rs. 4.64 lakhs

Rs. 2.12 lakhs

*The loan is for 4 years @ 9.5%. The Car Lease is also for 4 years.

The advantage of leasing a car also includes the experience of owning a new car every 1-4 years. You can choose to upgrade or downgrade your car based on your requirements. You don’t have to worry about maintenance.  And you, of course, don’t have to be concerned about whether anyone will buy your used car. 

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Category: Money Management

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