Go Back   Team-BHP > Team-BHP > Team-BHP Advice > On buying a car


Reply
 
Thread Tools Search this Thread
Old 3rd January 2007, 11:16   #1
GTO
Team-BHP Support
 
GTO's Avatar
 
Join Date: Feb 2004
Location: Bombay
Posts: 44,186
Thanked: 65,510 Times
Default ARTICLE: Lease OR Loan? Which EMI is better for you

Chances are; you hadn’t even have considered the lease option on your next car (until you finish reading this article). Lease plans basically exploit tax loop holes to make owning a car much cheaper for you. It’s a win – win situation for you and the leasing organization as you enjoy lower monthly payments, and they (the leasing company) receive the depreciation benefits! How would you like it if we showed you a way to own the same car for a lower annual cost or a better car for the same annual cost? What’s more, you can have sole priority to buy the car at the end of the lease tenure!

On a typical 5 lac rupee sedan, a 90% loan of 36 months would entail a Rs. 1,00,000 down payment (10% of ex-showroom price + Registration + Insurance + 1 EMI) and a monthly payment of about Rs. 16,800. Compare that to a lease option on the same car where there would be no down payment and a monthly installment of about Rs. 17,400. You can have the car transferred to your name at the end of 36 months for Rs. 50,000 (10% residual value). Simple math would show you that the total payments in the loan option came up to Rs. 6,88,000 while in the lease they were Rs. 6,76,400. Factor in the opportunity cost of the Rs. 1,00,000 down payment and the fact that the entire lease EMI is tax deductible (versus only the interest part of your loan EMI) and you can gauge why lease offers a mouth-watering proposition. It is worth a mention at this stage that most benefits of lease plans are applicable to companies and self-employed individuals.

Lease plans could be either “Finance leases” or “Operating Leases”. Finance Leases are plain funding for acquiring a car, which would transfer the ownership of the asset to the lessee at the end of the lease term. Operating leases by name state that they are of an operating nature i.e. the lessor would grant usage rights of the car to the lessee and at the end of the lease term take the car back. If it is to be transferred, then the Lessee has to pay the Market price of the car prevailing at the end of the lease term.

Scheduled maintenance, accidental repairs, insurance management, fuel management and chauffeur services can be included in both types of leases.

Lease Advantages


• You can claim the entire lease rental as an operating expense in the Profit & Loss Account, thereby enjoying a Tax benefit @ 33.67% which is higher then Depreciation @ 15% for Motor Vehicles. This benefit would apply if you enter into an Operating Lease agreement.

• There is no down payment in a lease. Therefore, it is freed up capital which you could otherwise use for investing in your business interests.

• Most popular lease organizations provide you with the option of transferring the car to your name at the end of the lease tenure. This is typically carried out at a pre-decided rate OR Market rate of the car (whichever you decide at the beginning of the lease term).

• If your organization has a fleet of vehicles, lease companies offer complete solutions that cover insurance management, regular services, maintenance and accident repair. This can make the task of fleet management considerably simpler.

Lease Disadvantages:


• Modifications to the vehicle are not generally permitted. You can, however, add accessories at the start of the lease tenure.

• In the case of an operating lease, limitations are imposed on the annual mileage.

• The car is not registered in your name. Not at least until you buy it at the end of the lease period.

Most popular Lease Organisations in India:

Orix India

Lease Plan

Last edited by GTO : 22nd January 2011 at 11:24.
GTO is offline   (2) Thanks Reply With Quote
Old 3rd January 2007, 11:36   #2
Senior - BHPian
 
Join Date: Oct 2004
Location: Bangalore
Posts: 1,425
Thanked: 29 Times
Default

Hi GTO,

Thanks for this article. I too am considering lease option for my next car. But I see two disadvantages here:
1. The car is not registered on my name. If I purchase it at the end of my lease period, it will be considered as a used car. If I have to sell it, then there is a lot of explanation I need to do.
2. I should check if the same lease company exists if I change my company. Otherwise, I will have to analyze the clause in the agreement which will make my exit better.
deepakhon is offline   Reply With Quote
Old 3rd January 2007, 11:46   #3
GTO
Team-BHP Support
 
GTO's Avatar
 
Join Date: Feb 2004
Location: Bombay
Posts: 44,186
Thanked: 65,510 Times
Default

True Deepakhon, when the car is transferred to your name at the end of the lease tenure...you will be the second owner on paper.

On your second point, TSK1979 would know better. I have PMed him to reply.
GTO is offline   Reply With Quote
Old 3rd January 2007, 13:20   #4
Team-BHP Support
 
tsk1979's Avatar
 
Join Date: Feb 2005
Location: New Delhi
Posts: 22,610
Thanked: 14,894 Times
Default

Quote:
Originally Posted by deepakhon View Post
Hi GTO,

Thanks for this article. I too am considering lease option for my next car. But I see two disadvantages here:
1. The car is not registered on my name. If I purchase it at the end of my lease period, it will be considered as a used car. If I have to sell it, then there is a lot of explanation I need to do.
2. I should check if the same lease company exists if I change my company. Otherwise, I will have to analyze the clause in the agreement which will make my exit better.
Hi,
I have been through this situation. I changed jobs in between the lease.
Frankly speaking you stand to lose in this equation if you change jobs in beginning. Since I did this when only one year was remaining, I did not lose much. Morover the fuel and insurance was being paid by company, so in effect I did not lose anything.

At the end of the lease period it depends on company to company. For most companies its simple.
At the end of the lease you pay 10% of the cost of the car and the car is in your name,
Now lets say your car was for 5Lac. At the end of 4 years you would pay 50,000 and the car will be in your name. But lets say the depreciated value of car was 2L, so 1,5L is your benefit and you have to pay tax on that, so another 50,000 gone. So at the end of lease period 1L will go out of your pocket.

Most lease agreements are made with the policy that an employee which stays for the entire lease period will reap huge benefits, but people who leave before that will pay penalty. This is the basic structure and so you cant do much about it. But then you can take a 3 year lease if you are sure of sticking around.

If you are moving from one big company to another, then there is another benefit, your lease can get transferred and you dont stand to lose anything. Most HR departments arrange for that if the company has such a policy.

Regarding your resale, you have to explain, since your one owner car would appear as if its a two owner car. but most sensible buyers understand this and know that it was a company lease which got transferred to the employees name.
tsk1979 is offline   Reply With Quote
Old 3rd January 2007, 14:44   #5
BHPian
 
Join Date: Oct 2005
Location: bangalore
Posts: 35
Thanked: 3 Times
Default

Does anyone know if FBT (fringe benefit tax) is applicable to leased cars?
If it is, then your company may pass that on to you, or count it as a part of CTC (cost to company).
In that case, the savings may not be much.
giri is offline   Reply With Quote
Old 3rd January 2007, 15:03   #6
Senior - BHPian
 
shuvc's Avatar
 
Join Date: May 2005
Location: Kolkata
Posts: 2,895
Thanked: 282 Times
Default

FBT is not being charged in my case. I was told that the organisation would levy it if required. It's been a year and has not been charged yet.
However, per my calculations when I bought the car, even with FBT factored in, one wins overall.

Colleagues that did not take company lease cars gave the following reasons
- Car would be second hand
- Not ready to give 3/4 year commitment to the organisation
- Planning to take partial loan only, say 50-50 of the price of the car
- Not all models are offered under the scheme
shuvc is offline   Reply With Quote
Old 3rd January 2007, 15:09   #7
Team-BHP Support
 
tsk1979's Avatar
 
Join Date: Feb 2005
Location: New Delhi
Posts: 22,610
Thanked: 14,894 Times
Default

The tax used to be 1200/month, not sure about latest rules as am not on a leased car now.
tsk1979 is offline   Reply With Quote
Old 3rd January 2007, 15:11   #8
BHPian
 
Join Date: Aug 2006
Location: BLR
Posts: 405
Thanked: 15 Times
Default lease plan

Here, all cars are available. If you are planning to take car on loan and spend 50k on fuel and another 10k on maintenance it would save you definitetely at the end of lease period you would have the car say at 1-2% loan which is fantabulous.

Heavy VAT is applicable on the EMI and hence the tax benefits has drastically come down... instead of earlier 33% one saved now it's come down to almost 20%.
ownerofazkaban is offline   Reply With Quote
Old 4th January 2007, 10:05   #9
GTO
Team-BHP Support
 
GTO's Avatar
 
Join Date: Feb 2004
Location: Bombay
Posts: 44,186
Thanked: 65,510 Times
Default

Just an additional note to add that leasing companies are reluctant to cover cars with terrible resale value (Fiat Petra, Palio etc.).

Quote:
Now lets say your car was for 5Lac. At the end of 4 years you would pay 50,000 and the car will be in your name. But lets say the depreciated value of car was 2L, so 1,5L is your benefit and you have to pay tax on that, so another 50,000 gone. So at the end of lease period 1L will go out of your pocket.
What tax would that be?
GTO is offline   Reply With Quote
Old 4th January 2007, 11:26   #10
Team-BHP Support
 
tsk1979's Avatar
 
Join Date: Feb 2005
Location: New Delhi
Posts: 22,610
Thanked: 14,894 Times
Default

Income Tax. That amount will be added to your income. There is some formula for how much amount gets added. This is true for corporate leases where after end of lease after paying a nominal amount the car goes in employees name. Since nominal amount is much lesser than depreciated value of car(15% every year) the balance amount is taken as gift to employee by company.
tsk1979 is offline   Reply With Quote
Old 30th January 2007, 11:30   #11
BHPian
 
Join Date: Aug 2006
Location: BLR
Posts: 405
Thanked: 15 Times
Default

I have got an offer for company car lease for 3 yrs with 1 % residual value EMI of 3245/- per lac for 36 months.

Is it worth going for it ? there is some 7% vat/tax on EMI, so is it true that i save approx 25% of EMI as TAX ?

swift vxi-abs EMI comes to approx 16.5k for 36 months with 43k residual amount. Is it good taking overall cost into account rather than buying on self loan ?

Also I get to save tax on fuel.
ownerofazkaban is offline   Reply With Quote
Old 26th December 2007, 10:27   #12
Newbie
 
Join Date: Dec 2007
Location: Hyderabad
Posts: 4
Thanked: 0 Times
Default

Well - this is my first post and I am going to get new wheels using the lease option - I can add only one more thing of value here - you guys have covered every bit of detail on pros and cons - there is another leasing company out there - Hertz Leasing. The things that I liked with them was easier exit options from the lease agreement.
rajanrajesh is offline   Reply With Quote
Old 4th April 2008, 12:34   #13
Newbie
 
desmondhaynes's Avatar
 
Join Date: Dec 2007
Location: bangalore
Posts: 1
Thanked: 0 Times
Arrow

Quote:
Originally Posted by GTO View Post

Most popular Lease Organisations in India:

Orix India

Lease Plan

Thanks for the very informative article.

Has anyone done any comparison with these 2 lease orgs? My co has a tie up with Lease Plan, but I think Orix is a bit more aggressive on pricing.
Features look appealing from Lease Plan.

Please help me with some comparison, and any experience that you may have had with "Lease Plan".


Last edited by Rehaan : 4th April 2008 at 12:42. Reason: 2 Smileys per post. Please read the Rules before proceeding.
desmondhaynes is offline   Reply With Quote
Old 4th April 2008, 15:37   #14
GTO
Team-BHP Support
 
GTO's Avatar
 
Join Date: Feb 2004
Location: Bombay
Posts: 44,186
Thanked: 65,510 Times
Default

I have heard only good things about either of them, desmond, though Orix was rated better for service quality.
GTO is offline   Reply With Quote
Old 28th May 2008, 06:58   #15
BANNED
 
Join Date: Aug 2007
Location: Bangalore
Posts: 293
Thanked: 0 Times
Default

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?
deepakvrao is offline   Reply With Quote
Reply


Thread Tools Search this Thread
Search this Thread:

Advanced Search


Similar Threads
Thread Thread Starter Forum Replies Last Post
The Cheap Loan or the Smart Loan - SBI Advantage Car Loan keyur Indian Car Loans & Insurance 200 27th November 2016 11:55
ARTICLE: How to get the lowest EMI & the best Finance Deal GTO On buying a car 192 9th September 2016 10:02
Car Loan - EMI - Varying Interest Rates torquarius Indian Car Loans & Insurance 4 15th February 2011 18:08
Car Loan (EMI's) transferrable?? rohanverdes1 Indian Car Loans & Insurance 3 6th October 2009 16:39
Lease or loan? Pro's and Con's of each. Rtech Indian Car Loans & Insurance 16 4th October 2006 16:50


All times are GMT +5.5. The time now is 11:36.

Copyright 2000 - 2016, Team-BHP.com
Proudly powered by E2E Networks