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Old 25th June 2011, 21:44   #1
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Default Car Lease Options from your Employer

Hi,

I'm planning to get a new car probably Swift Vdi. My company providing me the lease option as below. I'm not sure whether the deal is good or not. Please suggest.

1. Any car can be chosen regardless of Brand/colour etc.
2. No down payments.
3. Tax Benifits for the EMI amount paid.
4. Renewal of the Insurance will be done by the CLC vendor
5. Perquisite Value: INR 1,800 Per Month / INR 2,400 Per Month based on the cubic capacity of the car.
6. Interest rate 16.00 % for 2 years
14.35 % for 3 years and
13.80 % for 4 years
7.EMI per lakh INR 3968 for 2 years
INR 2941 for 3 years
INR 2447 for 4 years
8. Constant Residual Value
30% for 2 years
25% for 3 years
20% for 4 years

Market Residual Value
Not applicable

For instance Swift VDI's Ex showroom price is 5,65,361 and If I take the lease Options I have to pay 13893 for 48 months which comes around 652025. And to own the car at the end of 4th year I have to pay 20% residual value which comes around 112000.
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Old 25th June 2011, 22:05   #2
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Quote:
Originally Posted by Spectre
Hi,

I'm planning to get a new car probably Swift Vdi. My company providing me the lease option as below. I'm not sure whether the deal is good or not. Please suggest.

1. Any car can be chosen regardless of Brand/colour etc.
2. No down payments.
3. Tax Benifits for the EMI amount paid.
4. Renewal of the Insurance will be done by the CLC vendor
5. Perquisite Value: INR 1,800 Per Month / INR 2,400 Per Month based on the cubic capacity of the car.
6. Interest rate 16.00 % for 2 years
14.35 % for 3 years and
13.80 % for 4 years
7.EMI per lakh INR 3968 for 2 years
INR 2941 for 3 years
INR 2447 for 4 years
8. Constant Residual Value
30% for 2 years
25% for 3 years
20% for 4 years

Market Residual Value
Not applicable

For instance Swift VDI's Ex showroom price is 5,65,361 and If I take the lease Options I have to pay 13893 for 48 months which comes around 652025. And to own the car at the end of 4th year I have to pay 20% residual value which comes around 112000.
You get tax benefit on the EMI. If you take that into consideration, the savings will look better.

Please do a comparison if you have to take the cat on loan and see the total expense there. Ofcourse lease does have benefit of no down payment.

Who is paying the road tax. Yourself or the leasing company?

Onething you need to remember is that the car will be in companies name.
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Old 25th June 2011, 23:26   #3
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Default re: Car Lease Options from your Employer

Quote:
Originally Posted by prabhuferrari View Post
You get tax benefit on the EMI. If you take that into consideration, the savings will look better.

Please do a comparison if you have to take the cat on loan and see the total expense there. Ofcourse lease does have benefit of no down payment.

Who is paying the road tax. Yourself or the leasing company?

Onething you need to remember is that the car will be in companies name.
There is no down payment required if you go through the CLC way. Thats one major benefit.
@spectre, calculate how much tax you would be saving by opting for the CLC. If you fall under the 30% tax bracket then it makes sense. If you fall under the 10% tax bracket then it might not be as "profitable" to go for CLC. The interest rates are also a bit on the higher side compared to the usual auto loans. Also remember that when you have to change jobs, you have to either foreclose the loan or transfer it to someone else. Make a spreadsheet and calculate how much you might save.
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Old 26th June 2011, 00:50   #4
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Default re: Car Lease Options from your Employer

Make sure you work out the math right..

- Does the company finance the on road price (including tax, regn) etc.
- Do you get any fuel/driver benefits
- What do you need to pay to get the car transferred to your name after the lease expires.

Most importantly, make very sure that you are going to stay in the company for the whole period.
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Old 26th June 2011, 00:58   #5
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Default re: Car Lease Options from your Employer

The residual is quite high.. In my workplace, its either 1% or 10%. Also interest rate is the same for all durations (2/3/4/5 yrs). You should also get tax benefit on the fuel, driver & maintenance. PM me if you want any more info.

That said, go for it. Still a good deal compared to whats in the market currently.

As prabhuferrari mentioned, the car will be on your employer's name. When it gets transferred to you, you will be the 2nd owner. If your state has smart-cards for the RC book, then it will only show "2" as the owner.
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Old 26th June 2011, 06:27   #6
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Typically it works to be a good deal but watch out for:
1. Are you sure to be with the same company for the full duration. If not what are the lease termination clauses.

2. How about insurance. Will it be borne by company.

3. When you get back the car do you have to pay tax on the 20% residual value? If yes, understand how this is calculated.
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Old 26th June 2011, 07:45   #7
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Default re: Car Lease Options from your Employer

Lease termination is slightly complicated as you have to pay everything, cant transfer the lease to another company but can transfer to another employee if he agrees to take the car. So if you are going to stick with the company for 4 years then it makes sense.

Also keep in mind once you take the car after 4 years it will look like second owner on the RC book (You might not have a problem with that) but some may.
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Old 26th June 2011, 08:00   #8
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Default re: Car Lease Options from your Employer

Mine was a company leased car too. LeasePlan bore maintenance expenses, and they charged my employer some 2k per month as fleet management charges. So who's gonna pay for your maintenance.

Also, since the car will remain in company's name, you should be able to get tax benefit on fuel expense (in case your employer does not fully reimburse it).

Also, does your employer offer standby car when your car goes for maintenance/repair (it will cost extra in fleet management charges).

Does your employer have the clause that you will have to pay up company's contribution for already paid lease rental, in case you foreclose the lease? One thing to note is that leasing the car is a loss if you have to quit within half the lease period.

Do PM me if you need more info.
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Old 26th June 2011, 12:30   #9
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Default re: Car Lease Options from your Employer

If you would have paid all the EMIs in 4 years with fairly high interest rate and need to pay 20% of the car value to purchase it, it might negate all the savings you would have gained through the tax benefits. Please do the math again.
Even my current company has similar option but I have not opted for it for the same reason.
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Old 26th June 2011, 13:31   #10
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If you consider the tax savings, it should be equivalent to buying the car without paying interest on your EMIs. I know that it works similar to that from some of the leases that I have known.
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Old 26th June 2011, 19:01   #11
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Default re: Car Lease Options from your Employer

Quote:
Originally Posted by Spectre View Post
Hi,

I'm planning to get a new car probably Swift Vdi. My company providing me the lease option as below. I'm not sure whether the deal is good or not. Please suggest.
Good or not good is a function of what you are comparing the company lease option with. If you do not go in for the company option, the other options for you are
1) Buy from your own cash.
2) Take a personal car loan.

I recall creating an excel model last year which helps compare options. If you can provide more details, I can try helping you with the maths.
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Old 26th June 2011, 20:31   #12
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Quote:
Originally Posted by Guna
If you would have paid all the EMIs in 4 years with fairly high interest rate and need to pay 20% of the car value to purchase it, it might negate all the savings you would have gained through the tax benefits. Please do the math again.
Even my current company has similar option but I have not opted for it for the same reason.
Well. True. Totally agree to the fact the you would need to do some math to make sure it is a good deal. However if you are surely going to stick to the company I have found it to be usually good as compared to buying on your own with a bank loan. Some things that contribute to the savings:

1. Emis are interest free. Let's assume that means a 30% reduction. So even with a high interest rate it still makes sense.

2. Insurance. The first 3 to 4 years have the maximum insurance cost. Assuming it to be about 12k to 15k per year average(very basic calculation. Don't hit me for this. ) this alone would be about 50k. However the original post does not indicate who is going to pay insurance.
Also note that since the car will be In your company's name the insurance also may be in your company's name. What this means is that you will not be getting the no claim bonus when the car comes on your name.

3. The 20% is certainly concerning. Does it mean you would have paid 120% of the cost of the original car? Also in the policy I have at the end of the term I will have to pay some tax on the residual value of the car. This itself is turning to be around 40k for my indica. Another point to think about and check with your company.
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Old 26th June 2011, 21:21   #13
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Smile re: Car Lease Options from your Employer

A few of my office colleagues had opted for the car lease from the compnay and they are very much profited by that. I was also tempted to get one but the high EMI cost from the net payable actually put me off. You need to work the maths correctly to see if this option is actually beneficial to you. All the best.
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Old 26th June 2011, 21:55   #14
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Default re: Car Lease Options from your Employer

Keeping in mind the tax savings over period of 36 or 48 months lease plan is better option., Even if you are paying 120% for say 3 yrs it is nothing but 7% annualized interest but you might have saved 30% on tax and still 23% over all saving. we have to look at how much we are saving and stop looking at how much the lease company is making...all the best.
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Old 26th June 2011, 22:13   #15
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Default re: Car Lease Options from your Employer

Quote:
Originally Posted by Spectre View Post
Hi,

I'm planning to get a new car probably Swift Vdi. My company providing me the lease option as below. I'm not sure whether the deal is good or not. Please suggest.

...
What about fringe benefit tax? Who is going to pay that? This is a monthly amount over and above the EMI. Check if your company will pay this amount or you have to pay it.

Do you also get to reimburse maintenance and fuel cost? You will save tax on that amount too. I guess it is currently capped at Rs. 5000/month.

Also once you get the vehicle registered in your name after the lease, you can get the registration amount refunded, after deducting the amount for the years under which it was used with the company registration.
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