ARTICLE: Lease OR Loan? Which EMI is better for you

[condor]

The leasing looks to be a good option for business owners. For employees of companies that offer CLC's, it is a little risky.

• Employee pays registration & other charges to get car on road.
• Ex-Showroom price is paid by company (through financer, eg Citi)
• MOnthly EMI to employe - about 2800 per Lac for 3 yrs or 2400 per lac for 4 yrs
• End of lease period, employee pays 25% or 20% as residual value (Companies have increased the residual value from 10% recently)
• Registration charges, insurance, fuel & maintenance expenses (upto a limit) can be pre-tax for employee.
• Some more transfer fees & taxes.
• EMI is pre-tax.
• Empoyee pays FBT & lease tax (?)
• Intrest works out out to about 13-14%.

Catch is if employee moves during the period of the lease. The employee then ends up shelling out much more than what he would have if he had not fore-closed the lease.

[GTO]

Originally Posted by deepakvrao

GTO,

Have been following all the lease threads recently - any follow ups? Did you finally lease? Are these companies now willing to lease to individuals?

I haven't yet, though many in my family & friends circle have. No nasty surprises.

Originally Posted by condor

The leasing looks to be a good option for business owners. For employees of companies that offer CLC's, it is a little risky.

True. The benefits are maximum for business owners, since it is they who can claim depreciation.

[indivic]

Hi,

I put in some additional comments based on my experience with Leaseplan and ALD

Originally Posted by condor

The leasing looks to be a good option for business owners. For employees of companies that offer CLC's, it is a little risky.

• Employee pays registration & other charges to get car on road. - Not really this is also financed
• Ex-Showroom price is paid by company (through financer, eg Citi) - Infact it is onroad price including accessories via the leasing company
• MOnthly EMI to employe - about 2800 per Lac for 3 yrs or 2400 per lac for 4 yrs
• End of lease period, employee pays 25% or 20% as residual value (Companies have increased the residual value from 10% recently)
• Registration charges, insurance, fuel & maintenance expenses (upto a limit) can be pre-tax for employee.
• Some more transfer fees & taxes.
• EMI is pre-tax.
• Empoyee pays FBT & lease tax (?) - So far no lease tax but cannot depend on PC too much
• Intrest works out out to about 13-14%.

Catch is if employee moves during the period of the lease. The employee then ends up shelling out much more than what he would have if he had not fore-closed the lease.
- Yeah, there is a certain period e.g if the lease period is 3 years, till 1.5 years we have to pay a penalty to foreclose after 1.5 years this is is not applicable.

- Alternatively it is also possible to carry over the lease to the next company to which the employee moves to ,provided he/she qualifies for a vehicle in the same price band in the other company as well

[clix22]

Hi All,
I have just got some quotes on behalf of my company towards leasing a verna crdi sx with abs.

Some points.

1. The car gets a company registration. Hence on-road Bombay price is 10.4L ( almost 50k more than an individually registered car)
2. The lease is for 48 months post which, one has the option of buying the car at 20% value of car (ex-showroom cost) + tax. Which also means that One will be the second owner of the car in case one decides to buy it.
3. There are 2 kinds of lease - (a) Plain lease - one gets the car and has to pay for maintainance, extended warranty & insurance. (b) Full operating lease - The lease company looks after maintanance + insurance , everything.
4. The EMI for (a) is Rs. 24919/- pm while for (b) is Rs. 31319/-pm. - a difference of 6400/- per month! (I will obviously go for plan a).
5. One saves in 2 ways; firstly an opportunity cost saving of a minimum of 10% which one would have had to give as a down payment towards loan ( approx 155000 incl registration, 1st emi etc); secondly, 33% of 24919*48 = 394716. This is the amount one saves in income tax. In other words one would be paying almost a lakh more in tax every year in case one doesnt take the car on lease.
6. The lease component can be varied as part of your ctc depending on your hr dept, in other words there does not seem to be an upper limit on the amount you can portion towards the lease. ( of course if you portion your salary so that your lease gets you a merc while your boss drives an sx4 may lead to some problems)
7. Earlier the companies would work only with large organisations, but now are looking at propreiteships / partnership cos also.

Hope this information is of help.

[NetfreakBombay]

Originally Posted by clix22

33% of 24919*48 = 394716. This is the amount one saves in income tax. In other words one would be paying almost a lakh more in

Thats an eye opener. Does fringe-benefit tax apply in this case?

[clix22]

In my knowledge fringe benefit tax is not applicable as the car will be registered with the leasing company.

[menonrajesh]

Originally Posted by clix22

In my knowledge fringe benefit tax is not applicable as the car will be registered with the leasing company.

AFAIK, the car will be registered in the name of the company you work for. At the end of the lease period, you can transfer the ownership of the car into your name by paying the residual value (which could be 20% of the ex-showroom price - Not sure though) + tax.

[NetfreakBombay]

Its a decent option given that it saves tax + brings down initial costs of car purchase.

[sammyboy]

Yes, but when you reimburse the petrol,insurance and maintenance bills there is a 6% FBT that has to be paid.

[indivic]

Originally Posted by clix22

Hi All,
I have just got some quotes on behalf of my company towards leasing a verna crdi sx with abs.

4. The EMI for (a) is Rs. 24919/- pm while for (b) is Rs. 31319/-pm. - a difference of 6400/- per month! (I will obviously go for plan a).
.

Strange, does it include fuel as well ? This is because when I got a similar quote for my car last year, the EMI for the plan (b) that you mentioned was less than the EMI for plan (a) by about Rs.500/- , while it was very tempting the catch was that the 20% residual value does not apply when you go for the operating lease. I would have to buy it for the highest value offered by an outside bidder.

This meant that it would be better for me to just complete the lease and wash my hands off the car.

But going for the lease does save you a lot in taxes and opens up segments of cars that I wouldn't have dreamt to buy on an individual purchase.

[arif_t01]

Few Doubts!

1) More details with regard to a self-employed person!

2) Is it possible to have a used car or is Lease applicable only for New Cars?

3) If I am a self-employed person, I wouldn't mind the Lease period whether it is 3, 5 or 7 years. (considering the fact that I would like to keep the same vehicle for that much time). So, the Lease EMIs would be lower, right? So, which is better. 3 years (min) or 7 years (max)?

4) What do Lease company do with the used cars. Can they be bought cheap? (considering the fact that User has an option to buy the car at the end of lease term for approximately 10% or 20% of original price, which will still be cheaper than the depreciated price of the car)
No confusions I hope

[GTO]

Originally Posted by arif_t01

2) Is it possible to have a used car or is Lease applicable only for New Cars?

The lease option is available on used cars, but it is generally offered on a case by case basis. Also, the car shouldn't be over 1 - 2 years old.

wouldn't mind the Lease period whether it is 3, 5 or 7 years. (considering the fact that I would like to keep the same vehicle for that much time). So, the Lease EMIs would be lower, right? So, which is better. 3 years (min) or 7 years (max)?

3 - 5 years is ideal and the most popular.

4) What do Lease company do with the used cars. Can they be bought cheap?

The Lessee can buy it at 10 - 30% of the price, whatever has been decided at the time of signing the agreement. If the lessee does not wish to retain the car, the leasing company will (of course!!) sell it off at prevailing market rates.

[condor]

Isnt there any one on TBHP who has opted for a CLC ?

I want to know how does it work for the individual who has opted for a CLC. Is it good, or should one just go for a regular loan, albiet at a marginally higher rate ?

[ajmat]

Originally Posted by condor

Isnt there any one on TBHP who has opted for a CLC ?

I want to know how does it work for the individual who has opted for a CLC. Is it good, or should one just go for a regular loan, albiet at a marginally higher rate ?

I did but it only made sense since I deployed the money in the stock market and got my returns and also I planned to retain car for 5 years hence the tax breaks pay off! However if I did it again, I would look at a regular loan.

[Guna]

Originally Posted by hondadude

Not true. At least for mine and some other companies in bangalore, following applies if employees lease car (via the companies they work for)

1. EMI that employee pays is not taxable
2. If employee leases a car through the company, the amount of money spent on Petrol is tax exempt (up to a limit ofcourse)
3. Money paid on Insurance and Services is also tax exempt
4. Driver salary is also tax exempt.
5. The total money can be tax exempt for points 2, 3 and 4 above can't be more than 1.5 L

The only catch is that LeasePlan interest rates are a bit higher than market but overall it is a huge benefit for the employee.

Yes in my company too employee gets the benefit of tax on the monthly deductions and the fuel expenses.
Interst rate comes in to picture only if one is going out of the eligibility limit (for the addtional amount)