Today’s is a world of alternatives and infinite possibilities. Our lives are entangled in these alternatives as is visible in areas, food delivery - Swiggy, Zomato etc., mobility- Ola, Uber, communication - Instagram, twitter etc. Millennial scan be said to be the torch bearers in this transformation. At the same time, many from previous generations too have found such transformation interesting and handy. One such trend maker these days is Car Leasing. Car leasing concept has cut loose one of the several strings that our life is often controlled by. Let’s delve deep into the concept and its standing against car finance.

Car Lease- The Working

Car lease is the consent you derive from a company/lesser to drive a car of your taste for a designated period. You shell out a monthly rent as agreed by the lesser. The all-inclusive lease charge comprises regular wear and tear and insurance. But case involving damage due to negligence or drunken driving, driving without license etc. holds the lessee accountable for compensation. Policy on insurance varies from lesser to lesser, while one may want you to buy car insurance, the others will add to the rental.

The ownership of car rests with the lesser.  Income and age, among others determine your eligibility. Generally, it is free of down-payment. Two leasing modes flowing in market are -finance leases and operating leases. Corporate prefer operating leases wherein the ownership is maintained with the lesser during and post lease term. On the contrary, in financial lease the ownership is assigned to the lessee at the conclusion of lease term.

Car Loan - The Old School

Car loan is a simple contract between the lender and the borrower. This financial product lets the lender to advance money to the borrower. He is liable to pay back the amount in Equated Monthly Installments (EMI) in a measured time. Inability to do so will snatch the ownership of car to the lender. The EMI one pays depends on the rate of interest as determined by the bank. Credit worthiness leans on your income, credit score, and age and so on.

The Ease with Lease

What makes car lease hits the bull’s eye is it flexibility, choice and unpredictability. Unlike car loan, leasing is a slide ride without undue downpour of paperwork. It also evades calculator tour used for interest calculation. Car lease is a straightforward monthly rent as agreed by both parties. Additionally, the monthly rental is cheaper than the EMI in car loans. There is more for people whose heart drives along easily with diverse cars.

Car lease is a suitable approach to experience a car for 2-3 years and then clutch a new steering. As soon as the agreement expires one can hunt for a new model/ brand. Leasing a car therefore saves you from monotony. Also, the added layer of stress over resale value and process of owned car is removed in leasing a car.

This advantage is further garnished by the maintenance cost which is more likely to be a part of rental.  A lot of time, energy and money is channeled to maintenance and repair work. This may produce fissures in your dream car experience.

Loaning is an obligation not everyone wants to be encircled by. Millennial with distasteful memories of their parents indebted by loan will be upfront in opting car lease. Let’s understand the difference through a comparison chart.

Parameter

Car Lease

Car Loan

EMI

The car loan EMI will only involve the cost of  car usage plus miscellaneous expenses

The EMI covers a fraction of the cost of the car

Down Payment

Not required

In most cases, it is mandatory

Mileage limit

The lesser will specify mileage limit, over consumption is charged

Nothing like mileage limit here.

Returning the car

Expiration of lease tenure marks return of the car

Ownership of the car is acquired post loan completion

Car Ownership

Ownership of the car can be acquired at the end of lease by paying an amount determined at market value of the car or otherwise

Complete payment of loan amount lets you own the car

Adding car accessories

Permission from lessor is needed for modification

You own the car, add what pleases you

Tax benefit

Tax benefit up to 30% available

No tax benefit available

Guarantor

Not needed

Generally required

 

Car Lease- Everything that glitters is not gold!!!

Though car leasing has quite a flexibility and convenience, it cannot be crowned as a straightaway winner. Lifestyle expressing frequent movement from city to city may not realize car leasing benefits. Most lessers restrict such transfer of vehicles. Many lesser have put a threshold on the number of kilometers one can drive. Any over consumption will lead to added cost per kilometer. This cap could however be expanded, but with an extra cost. The cost factor does not pause here. Maintenance cost is only for mild repairs. Major repair work is not covered under lease terms. This cost is borne by the lessee at the end of lease agreement.

Talking about car modification enthusiasts, leasing could be a barrier to their creativity. Only the lesser can grant permission for car customization. This is such a pinch that one might feel owning a car than leasing it. Spending a hefty amount during lease period and suddenly sensing that you still don’t own a car can be distressing. You lease a car but the steering remains with lesser. Additionally, any financial crisis coming along end of car lease term can make you carless for an indefinite period.

The joy of owning (buying) a car compliments the sense of accomplishment that working class people look for in their lives. On the contrary, car lease comes with a distinct understanding of serving the market.

Car lease vs Finance – Understanding the Mathematics

Car manufactures have entered the lease market with lease period ranging from six months to five years, depending on the city and variant opted. Mahindra & Mahindra and Skoda have permitted certain models on lease in India with minimal or no down payment. Hyundai arrived in market with its fleet of Santro, Grand i10, Elite i20, Verna and Creta ready for lease to individuals and companies.

What makes these manufacturers a service provider is the shifting mood of consumers. The mathematics involved is also quite attractive to people. For example, leasing a car worth ₹ 12, 85,000 for four years will compute the monthly rent as ₹ 30,887 including maintenance, insurance and recurring expenses. Thus, you spend ₹ 14, 58,659 at the end of four years. Leasing is also about receiving tax benefit of up to 30%, which adds to nearly ₹ 4, 45,000 over the period of four years. The final expenditure stands at ₹ 10, 37,803. However, owning the same car from bank credit will compound the EMI to ₹ 32,027 per month, including an interest rate of 9.5%. Thus, your total expenditure bulges to ₹ 15, 37,281. Picking lease over loan makes your net savings to₹ 4, 99,478. Here, clearly leasing overshadows loaning. It, however, does not consider the additional amount payable in case of owning the leased car. Also, if the resale value exceeds the net savings from leasing, then purchasing a new car turns out to be a healthier deal, otherwise not.

 

Is lease an ease and loan bemoan?

Car loan is expensive but it is an investment that will crown you with ownership. Car lease is comparatively cheaper that will take away the car once the subscription is over.

Though the total expenditure for a car loan is higher, you should remember that the amounts paid can be considered as an investment as you will have the car at the end of the tenure. However, in case of a car lease, you spend lesser but will have to return the car after completion of the specified period.

If you are one of those with less time to spare for maintenance , insurance renewal and other layered responsibilities, then lease is what will make your life easy going. It will also quench your thirst for upgrading your car every two- three years. However, if ownership, customization and predictability in life excite you then buying a car is the most feasible option for you. In the end, it has to be kept in mind that leasing is in nascent stage in India and is yet to take off with full throttle.