Decoded: When should you lease a car rather than buying it - Times of India https://timesofindia.indiatimes.com/business/india-business/decoded-when-should-you-lease-a...

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Decoded: When should you lease a car rather

Diwali is round the corner, and you want to buy a new, flashy SUV,
but the idea of shelling out Rs 20 lakh for it, is giving you second
thoughts. So, what can you do instead? You could either buy a

second-hand car or simply lease a brand new one.

How does leasing work?

Leasing allows you to take home a new car without the hassle of
owning it, or without even having to make a down payment. You
will have to pay monthly instalments for as long as you keep the
car. These instalments include the cost of the vehicle, insurance,
maintenance, and other recurring costs. You need not pay road tax separately. 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.

Car leasing follows the pay for usage model where you pay only for the period during which you use the car. Once
the usage period is over, you can surrender the vehicle to the owner and stop paying your instalments. The
instalment amount you pay for leasing a car includes insurance charges. The minimum lock-in period is 2 years,

and the maximum is 5 years.

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What does my monthly rental include?

It varies from company to company, but the most comprehensive corporate plans cover the following:Repair &

Maintenance for full tenure

Pick Up & Drop Facility

Replacement Car facility

Road side assistance

Insurance for full tenure

Roadtax

What kind of leasing options do I have?

There are two kinds of leasing models—finance leases and operating leases. Corporates usually follow the
operating lease model where you either return the car to the lessor or purchase it at the prevailing market value

at the end of the lease tenure.

What is the biggest USP?

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The tax advantage: Such a model works well for salaried class as you get a tax benefit of up to 30% annually and
you can claim the entire rental as an expense. If the lease rental of the car is part of your salary package, it means
the lease amount would be reduced from your salary before taxes are paid, thereby reducing your taxable
income and giving you a considerable tax advantage as compared to someone who hasn’t opted for this benefit.
For example, your salary package is Rs 25 lakh per annum. Of this, Rs 4,80,000 is your car lease amount, and
another Rs 39,600 is allocated towards car maintenance, insurance, fuel and driver allowance. Overall, Rs 5,19,600

will be deducted from your taxable income, and you will be liable to pay tax on Rs 20,59,600 only.

No down payment: You need not to make any down payment to lease the car. This is a clear saving and you can

employ this cash elsewhere.

Upgrade your model: Moreover, you have the flexibility to upgrade your model and once the lease scheme is over,

you can return the car to the company and get another of your choice.

Convenience: You don't have to take the car to the garage as someone else takes care of the maintenance of the
car, not having the hassle of filing for insurance claims because the leasing company does that, and the
convenience of not having to sell the car at the end of four or five years because the car automatically goes back

to the leasing company.

Biggest disadvantage?

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Caps: There are caps on kilometres allowed in a lease car in a month. If you exceed these caps, you are penalized

with additional costs. While buying a car, there is no such limitation.

Can I add accessories to my car? To install any accessories, you first have to inform the company and get an email
approval. Also, in case there is damage to the car due to installation of accessories then you may have to bear that

cost.

Mid-term termination: Car leasing is costlier if you leave the company in between or want to terminate the lease
before the lease tenure is complete as many companies keep high penalty charges in case of mid termination of

car leasing.

How is this different from a car loan?

If you opt for a loan, you are the owner of the car and you pay for it in installments. The car acts as the guarantee.
So, in case you fail to repay the car loan, the lender will take ownership of the car. The EMI you have to pay
towards the car loan will depend on the rate of interest decided by the bank. Your eligibility for the loan will

depend on your income, credit score, age, and so on. You get no tax benefit when you opt for a car loan.

Lease vs Loan, which is better and when?

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Buying a car with a loan is cheaper in the cases of mid-entry passenger cars and premium cars. But if you are
looking for a convenient-short-term hassle-free hands off approach to driving your dream car, then leasing wins
hands down. These plans are aimed for millennials that don't want to get into the hassle of buying and selling a

car every three to four years.

If you lease the Kia Seltos ( petrol model) which has an ex-showroom price of Rs 16,39,000 for a period of four
years, you shell out Rs 47,295 every month as lease payment which includes maintenance, insurance, road tax

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and recurring expenses. At the end of the four years, you would’ve spent Rs 22,70, 160, But leasing means you get
a tax benefit of up to 30%. Now, suppose you earn an annual CTC of Rs 30 lakh, then your tax saving at the end of
your 4-year tenure would be roughly Rs 7 lakh. Thus, your total expenditure at the end of your four years is Rs 15.7
lakh. But please note that you do not own the car after this tenure ends. The car is then returned to the leasing

company after your tenure is over.

However, if you buy the same car by availing a loan for the same time period at an EMI of 8% interest, you will
spend Rs 40,000 every month. At the end of 4 years, you would have shelled out Rs 19.2 lakh. Add to this your

maintenance charges of Rs 80,000 for the 4-year period and car insurance of Rs 60,000 every year.

The numbers may appear to favour leasing but this doesn’t factor in the fact that you must pay more if you wish
to keep the car. If you wish to retain the car, you will have to shell out roughly Rs 5.7 lakh more. Now the cost of
retaining a car varies depending upon the residual value, or the resale value of the car, with its depreciation

figured in. If the resale value is higher than the money saved on leasing, then buying is a better bet.

Secondly, if you want the car for road trips etc, then leasing is not a good option because there is a cap on the
number of kilometres you can drive. In this case, your monthly cap is 666 km, which is roughly 22 kms a day. And
if you exceed this quota, you have to pay Rs 7.2/km as excess charges.

Let's take another example where you decide to lease the Hyundai i20 Asta (O) 1.0 Turbo DCT Dual Tone, which
has an ex-showroom price of Rs 11,17,900 lakh for a period of three years, your monthly outgo is Rs 40,367. At the
end of three years, you would have shelled out Rs 14,53,212. Now again consider a 30% tax saving, which comes to

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Rs 5.2 lakh. So the total expenditure at the end of 3 years is 9.3 lakh. Now if you decide to retain the car at the end
of the tenure, you have to pay around Rs 3.5 lakh more, if you consider a residual value of 0.31, which is lower

compared to the premium Seltos model. So my total outgo is Rs 12.8 lakh

Now if I buy the same car with a 3-year loan at an 8.5% interest rate, the total outgo would come to Rs 12.7 lakh.
But if I add the insurance and maintenance charges, the leasing option turns out to be cheaper and hassle-free.

Opt for leasing model for cars priced below Rs 15 lakh and when you are in the 30% tax bracket

Hence, the lease model makes more economic sense, if you plan on buying cars that have an ex-showroom value
of less than Rs 15 lakh.

The lease plan also works well only if you fall in the 30% tax bracket because if you are paying Rs 30,000 per
month as car lease, then you clearly save Rs 9,000 per month on tax (30% of Rs 30,000). But if you fall in a lower

tax bracket like 10%, it won't be that beneficial since your savings would only be Rs 3,000 per month.

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