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Which is better for you: Car Lease or Car Loan?

Updated: May 22, 2020

It’s an age old question that customers have pondered over ever since the invention of lending. Here is a definitive, logical and comprehensive guide to which is better to put the question to rest.


First of all, we must layout the parameters on which the comparison shall be made.

After much research and deliberation, we consider the following as the important parameters for decision on owning a car:

  1. Monthly Payments

  2. Value for money

  3. Ease of use or convenience


We have combined our expertise with those who have tried both loan and lease options, and here is the summary of the findings:


1. Monthly payments

The car lease monthly payments (EMI) are mostly significantly and sometimes astonishingly lower than the car loan monthly payments (EMI).


Here is a comparison of SBI Car Loan EMI vs. Caryaan Car Lease EMI:

Image not loaded.
Owning a car on lease can save you a significant amount of money..

Note: Actual EMIs may vary. The table estimates EMIs based on fair assumptions of loan interest rate of 9.5% and for ex-showroom car price of ₹ 10 lakhs plus RTO charges plus zero depreciation comprehensive insurance during the tenure.



2. Value for money

Lease payments are tax deductible, so you pay less tax on your income. Meaning that the EMI that you pay towards your car lease for full financial year is deducted from your taxable income. So your lease EMI is effectively 30% lower than what you pay because you pay that much lower taxes.


Here is the comparison of SBI Car Loan EMI with Caryaan Car Lease Effective EMI:

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Owning a car on lease can save you a lot when combined with tax savings.

Note: Actual EMIs may vary. The table estimates EMIs based on fair assumptions of loan interest rate of 9.5% and for ex-showroom car price of ₹ 10 lakhs plus RTO charges plus zero depreciation comprehensive insurance during the tenure. Effective lease EMI assumes 30% tax savings.



3. Ease of use / Convenience

  • Paperwork

This is quite similar between a loan and a lease, as lease is a special form of loan. Both require KYC, proof of income, and credit history/score.

Leasing companies are generally a tiny bit more relaxed about credit history, and can overlook bad loans that happened many years ago. They are more concerned about controlling fraud and making sure you have the income or bank balance to make monthly payments.


  • Time taken

Car lease processing generally takes less time, as the operations are mostly digital and are run in the most competitive way. They are more keen on giving customers a better experience, so leasing experience is smoother and faster than the loan experience.


  • Ownership

Both car lease and car loan give you ownership of the car, so RC of your car shall be in your name and it will get a white/personal-vehicle number plate. This is unlike renting or subscribing to a car where you do not own the car, so RC of the car shall not be in your name and it will get a commercial/yellow number plate.


  • Flexibility

This is one of the major differences. In lease, you get two broad choice:

1) Return the car after stipulated lease period ends without any monetary obligation.

2) Keep the car by either extending the lease or buying it by paying the residual value that was determined at the start of the lease.


  • Used car disposal

In car loan, you would sell it off in used car market or website after being hassled by agents who shall inspect your car under a microscope and tell you how unworthy your car is.


In car lease, you have already sold the car at blue-book fair residual value at the start of the lease. But should you decided to keep it further, you can extend the lease or buy it.


More than 98% of leased cars are not bought at the end of lease because people want change and would upgrade to a new or a different car.


  • Add-ons:

Insurance: Zero depreciation insurance is almost always included in the payments, so you do not have to worry about stupid drivers & donkeys on the roads.

Maintenance: This is optionally included for a little bit extra. So you spread your maintenance expenses over months and benefit from lease companies economies of scale of high-value and low-cost garages & labour.



Conclusion:

While leasing is cheaper and more flexible, there is no fixed answer to what to choose between car lease and car loan. It depends on your situation really.


Situation 1: If you definitely do not want to change car for at least 6 years and you cannot benefit from tax saving, then car loan is the right way for you.


Situation 2: If you are likely to change car in less than 5 years or you can benefit from tax saving, then car lease is the right way for you.



Next steps:

Get a price quotation for the car you want and compare it with loan,

Or speak to Caryaan lease experts to discuss whether car lease is right for you.


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