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  • Car lease Vs Car loan

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  • With car finance options such as car lease and car loan becoming a popular way of availing a vehicle, people are torn between choosing car lease and car loan. Leasing a car is definitely an easier process and allows you to remain carefree without having to worry about maintenance since the leasing company usually takes care of it. Applying for a car loan, on the other hand, is a tedious process, unless applied for online. Also, car loan makes the car available to you at the end of the loan period, whereas you will have to return it in the case of a car lease.

    Here, we will discuss car lease, car loan and the pros and cons of both these finance methods.

    Car Lease - How it Works

    A car lease basically allows you to drive a car of your choice for a limited period of time. A leasing company will provide you with a car, while they own full ownership of the car, in return for monthly rentals as decided by them. You need not pay the road tax, maintenance expenses, or other recurring costs. While some leasing companies require you to buy a car insurance policy, some others will include the cost in the rental. Your eligibility will depend on your age and income among others. At the end of the chosen lease period, you will have to return the car to the company. If you wish to take over ownership of the car, you will have to pay an amount specified by the company.

    Car Loan - How it Works

    A car loan is a useful financial product that helps you pay the price of your dream car in installments. Under a car loan, the car you avail will act 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 car loan will depend on your income, credit score, age, and so on.

    Car Lease Vs Car Loan

    The key differences between car lease and car loan are explained in a tabulated form below:

    Parameter Car Lease Car Loan
    EMI The car loan EMI you pay will only include the cost of usage of the car plus miscellaneous expenses The EMI is a portion of the cost of the vehicle
    Down Payment You need not make a down payment In most cases, you will have to make a down payment
    Mileage limit The leasing company will specify a limit on the mileage, any extra consumption will be charged There is no limit on the mileage
    Returning the car The car will have to be returned at the end of the lease tenure You will have complete ownership of the car after completion of the loan period
    Ownership of the car You will have to pay a specific amount at the end of the tenure in case you wish to acquire the car You need not pay anything at the end of the loan tenure
    Adding car accessories You will have to check with the leasing company before you add any accessory You can add as many accessories as you like to the car
    Tax benefit You can avail a tax benefit up to 30% No tax benefit is offered
    Guarantor No guarantor is required A guarantor is usually required

    Should you lease a car or buy it with the help of a car loan?

    Let’s say you wish to drive a Ford EcoSport in Bangalore. You can lease the car from Revv Open, through BankBazaar, at an EMI of Rs.27,300 for a period of one year. So, the total expenditure for a year will be approximately Rs.3.27 lakh. Your car insurance expenses are not included in the amount. Whereas, if you take a 1-year car loan for a Ford EcoSport, the EMI will be Rs.82,001 assuming the rate of interest is Rs.10.35% and the cost of the EcoSport is Rs.9.31 lakh.

    However, if you lease the same car for 4 years, the EMI will be Rs.21,00 – taking the total expenditure up to Rs.10.08 lakh. In case of a 4-year car loan at the same interest rate, the EMI will be Rs.23,769 – adding up to approximately Rs.11.4 lakh for 4 years.

    The figures explained above are tabulated here:

    Details Car Lease for Ford EcoSport Car Loan for Ford EcoSport Car Lease for Ford EcoSport Car Loan for Ford EcoSport
    Duration 1 year 4 years
    EMI Rs.27,300 Rs.82,001 Rs.21,000 Rs.23,769
    Total expenditure by the end of the tenure Rs.3.27 lakh Rs.9.84 lakh (at 10.35% interest) Rs.10.08 lakh Rs.11.4 lakh (at 10.35% interest)

    Note: The rates mentioned above are only indicative. Actual rates may differ. Check with the leasing company/bank before you initiate the process.

    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. Thus, if you like to switch between cars and are not keen on investing in a single vehicle, you can choose car lease. However, individuals looking to own a vehicle should go for a car loan.

    How to apply for car loan/car lease online

    Compare the various car loan schemes/car lease schemes available in the market and apply through the official website of the bank/lease company you choose. Alternatively, you can choose a web aggregator that allows you to compare between schemes and choose the most suitable scheme. Once you provide your basic details and apply for loan/lease, the company will check your eligibility. A representative will call you and communicate the next few steps you will have to follow to get the car loan/car lease.

    Display of any trademarks, tradenames, logos and other subject matters of intellectual property belong to their respective intellectual property owners. Display of such IP along with the related product information does not imply BankBazaar's partnership with the owner of the Intellectual Property or issuer/manufacturer of such products.

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