Car Lease vs. Car Loan
Confused between a car lease and a car loan? Leasing offers lower upfront costs and hassle-free maintenance, while car loans help you own the vehicle after the tenure.
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 |
Choosing Between Car Lease and 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. 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 or 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.
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FAQs on Car Lease vs. Car Loan
- I have leased a car. Do I have the option of purchasing it after my leasing period is over?
Most leasing companies do offer the option to purchase the car at the end of the leasing period.
- Will the price of the car I had leased and want to purchase now be different from its market price?
Yes, a car is considered to be a depreciating asset. It means that the value of a car will lessen with time. Hence, the cost of the car that you had leased will cost significantly as compared to purchasing the same model from a showroom.
- Can I apply for a car loan if I wish to purchase a leased car?
Yes, you can apply for a car loan if you wish to purchase a car leased by you.
- I wish to lease a Mercedes Benz. Will the rental price differ as compared to other car models?
Yes, Mercedes Benz is considered to be a high-end, luxurious model and hence you will have to pay a higher rental as compared to other car models which cost less in the market comparatively.
- Is it necessary for me to have a driving licence in order to lease a car?
Yes, it is mandatory for you to have a driving licence in order to lease a car.
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