Should You Buy Or Lease A Car?

If you live in a metro city, then you better buy a car. If you and your family go on long drives or spend late nights at parties you definitely need a car. This brings to mind an important question, Should you buy or lease a car?

What is Car Lease?

Car leasing allows you to drive a car without actually buying it or paying huge money. With a car lease you pay regular monthly instalments only for as long as you keep the car. The monthly instalments include the cost of the car, the insurance premium, maintenance, applicable taxes and even recurring costs. Most of the time there is no down payment involved.

Types of Car Lease:

Operating Lease: You have to return the car to the lessor or purchase the car at the prevailing market price at the end of the term.

Finance Lease: In this model the ownership of the car is transferred to your name at the end of the tenure.

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Should You Buy Or Lease A Car?

Popular automakers like Hyundai, Skoda, Fiat and Mahindra are offering personal lease programmes. This begs the question, should you avail a car loan or take a car on lease?

See Also: How to choose Best Car Loan

Car Lease vs Car Loan

Let’s take the case of South Korean automaker, Hyundai. This company offers the base version of the SUV Creta at a monthly rental of just Rs 17,642. This is inclusive of road tax and also the GST for a time period of 5 years.

What if You Were to Avail a Car Loan?

Well, there’s a down payment of Rs 2.73 Lakhs. Then car loan EMIs of Rs 18,901 for 5 years. Take a look at IndianMoney.com car loan calculator to get an idea on the car loan EMIs. 

Take a look at Ather Energy battery-powered scooters. Ather Energy has personal lease options on Ather 450. (This is a battery-operated premium scooter). You have to make a down payment of Rs 75,000 which is refunded after 3 years. There is a monthly rental of Rs 2,500 for 3 years.

See Also: How to Apply for Car Loan?

Why Youth Like Car Leasing?

• Today’s youth and millennials prefer cab-sharing services like Ola and Uber. With a car lease, you can drive a car without the care of a high investment. You don’t have to spend money buying a car or even avail a car loan. There is no cost of owning a car.
• Car lease is great for people who like changing cars every 3-4 years. This is great for those who like new products.

Advantages of Car Lease:

• Getting a car lease is easy on the pocket. Many automakers don’t ask for down payment and rent is lower than EMIs.
• You don’t incur car maintenance costs and insurance costs.
• You can easily upgrade to a new car model after 2-3 years.

Disadvantages of Car Lease:

• There is a stiff penalty, if you end the lease prematurely.
• You don’t get to own the vehicle at the end of the tenure.
• The monthly rent you pay for short period of time (This is 2-3 years), turn out to be costly.

See Also: Why Do You Need a Car loan?

When to Lease a Car?

Take the case of Hyundai Elite i20 base petrol variant available on lease at Rs 9,813 which is inclusive of GST. This is for a period of 5 years. Maintenance and insurance costs are not included. This works out to be Rs 5,88,780 over the leasing term.

Let’s say you bought the same variant through a car loan. You made a down payment of 20% of the cost of the car and the remaining 80% was financed through a car loan. This is a down payment of Rs 1.22 Lakhs. Car Loan EMIs are Rs 11,000 a month. This is Rs 6.6 Lakhs over tenure of 5 years. The resale value of the car is Rs 3.36 Lakhs after 5 years. If you subtract the car resale value from the car loan EMIs, you get Rs 3.24 Lakhs. (Rs 6.6 Lakhs – Rs 3.36 Lakhs). You add the down payment of Rs 1.22 Lakhs. This works out to be Rs 4,46,000. The cost of leasing the car is Rs 5,88,780.  You incur Rs 1,43,000 more when leasing the car. (This is Rs 5,88,780 – Rs 4,46,000).

Conclusion: Car leasing is costlier than availing a car loan. But, if you cannot afford the down payment and still want to drive a car, opt for car leasing model.

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Should You Buy Or Lease A Car?