[TheMufi]

Dear Fellow Bhp’ians.
Need your expert point of views opinion on this –
I opted for my company car lease policy back in 2012 from my employer, and got myself a Vento on the Orix 3 lease plan. The car is Mumbai ( MH02) June 2012 registered, a Black highline diesel and has appx 16 k clicks till date.
The invoice price at the time was Rs 11.5 lacs. Till date, the car has cost me Rs. 8.17 lacs ( i.e Rs 1.33 lacs - ( upfront RV etc ) + Rs 6.84 lacs ( i.e Rs 38 k monthly EMI x 18 months )
I’m moving on form my current company, as a result I have to either foreclose the lease, or transfer the lease to a personal one. Now here’s the issue, as I look at it–
1. I’m taking a sabbatical from work for the next few years– so the option to transfer the lease to new employment does not exist.
2. Transferring the lease to a personal one means – no tax rebate and a substantially high monthly outgoing of Rs. 38 k for a 6 lacs rupees book value on vehical.
3. Foreclosing the lease means I end up paying Rs 6.21 lacs ; over and above the Rs 8.17 lacs already paid. ( i.e Rs 1.33 lacs upfront + Rs 6.84 lacs lease EMI’s paid from July 2012 till Dec 2013)
4. Selling the car ( post foreclosure ) – I lose Rs 5.69 lacs ( Rs 6.21 foreclosure amount + 1.33 lacs upfront down payment + Rs 4.85 lease EMI’s till date ( Rs 6.84 lacs less 30% towards appx tax benefit gained till date ) ) – ( estimated market resale of Rs. 6.7 lacs as on date )

I wanted your thoughts / suggestions on – the best way forward for my situation, and any alternate suggestions to minimize losses.

[Jaggu]

Originally Posted by TheMufi

Dear Fellow Bhp’ians.
Need your expert point of views opinion on this –
==========
I wanted your thoughts / suggestions on – the best way forward for my situation, and any alternate suggestions to minimize losses.

See if a colleague will be interested to carry the lease for you internally, i have seen this being done in some places. He gets the tax discount and you continue with emi but at same rate.

[mints21]

Foreclosing a lease agreement with a leasing company is a real pain. Be it an upfront foreclosure or selling a car in the open market, the user is always at loss. My colleague is struggling with Carzonrent to foreclose an year old Toyota Corolla -V A/T, and the exorbitant rates on both the sides are not allowing him to take any call.
I would suggest if you can rope in someone from the administration of your company to negotiate a win-win deal. But, again this depends on the quantum of the business that the leasing company is getting from your organization.
Last but not the least, if the above does not work out then try and look for a fellow colleague else you will have to bear with the loss.

[zenren]

Originally Posted by TheMufi

I wanted your thoughts / suggestions on – the best way forward for my situation, and any alternate suggestions to minimize losses.

One option is to sell the car without foreclosing the lease. See if anyone in your company is looking at buying a used car and get the lease transferred to their name. Since it is a leased car, I assume the registered owner of the car would be your company. So an internal lease transfer would mean it would not have to be disturbed and the HR would deduct the EMI from his salary instead of yours. He can pay the remaining EMIs and own the car by paying the residual value at the end of the lease tenure.

You can negotiate a deal with the prospective buyer for the amount he needs to pay you 'offline' to get the lease transferred to his name, since he needs to pay ~18 EMIs less.

However, do remember that if you buy a 10L car with loan, its 10L + interest that you would end up paying to close the loan and 'own' the car. As per your calculations, you need to pay 8.17+6.21=14.38L to foreclose the loan and own the car. Due to tax savings on the 18 EMIs, you should have saved 2L already out of this amount which means the net cost for you to own the car is ~12L which is less than what someone would normally pay to buy a Vento with a 3 year bank loan. So foreclosing the loan is not going to be so big a loss as you think.

You can also explore the option of a used car loan for full/part of the foreclosure amount to prevent 6.21L going out of your pocket all of a sudden. This is more or less the same as transferring the lease to a personal one, but the difference being that you get to choose the number of EMIs to space out the remaining payment according to your new position. BTW, since used car loans carry high interest rates, its better to take only the difference between foreclosure amount and funds you can arrange easily otherwise as the loan amount.

Originally Posted by Jaggu

See if a colleague will be interested to carry the lease for you internally, i have seen this being done in some places. He gets the tax discount and you continue with emi but at same rate.

This is another option if you have some close friend without an existing lease who can continue the lease for you. Transfer the lease to his name so that the EMI gets deducted from his payroll and you reimburse him the EMI every month. People might be sceptical on this since they would be the registered owner of the vehicle that you are using and not all friends might be willing to do this. They'll have to be involved if there is an accident, insurance claim etc. Its your lucky day if you've got someone who is fine with this arrangement.

[TheMufi]

Originally Posted by zenren

One option is to sell the car without foreclosing the lease. See if anyone in your company is looking at buying a used car and get the lease transferred to their name.

He can pay the remaining EMIs and own the car by paying the residual value at the end of the lease tenure.

You can negotiate a deal with the prospective buyer for the amount he needs to pay you 'offline' to get the lease transferred to his name, since he needs to pay ~18 EMIs less.

However, do remember that if you buy a 10L car with loan, its 10L + interest that you would end up paying to close the loan and 'own' the car. As per your calculations, you need to pay 8.17+6.21=14.38L to foreclose the loan and own the car. Due to tax savings on the 18 EMIs, you should have saved 2L already out of this amount which means the net cost for you to own the car is ~12L which is less than what someone would normally pay to buy a Vento with a 3 year bank loan. So foreclosing the loan is not going to be so big a loss as you think.

You can also explore the option of a used car loan for full/part of the foreclosure amount to prevent 6.21L going out of your pocket all of a sudden. This is more or less the same as transferring the lease to a personal one, but the difference being that you get to choose the number of EMIs to space out the remaining payment according to your new position. BTW, since used car loans carry high interest rates, its better to take only the difference between foreclosure amount and funds you can arrange easily otherwise as the loan amount.



This is another option if you have some close friend without an existing lease who can continue the lease for you. Transfer the lease to his name so that the EMI gets deducted from his payroll and you reimburse him the EMI every month. People might be sceptical on this since they would be the registered owner of the vehicle that you are using and not all friends might be willing to do this. They'll have to be involved if there is an accident, insurance claim etc. Its your lucky day if you've got someone who is fine with this arrangement.

Thanks Jaggu, Mints and Zen for your valuable suggestions! While i ponder on these and circle back with Admin to see whats possible, just wanted to clarify that the lease is in my individual name, so the internal transfer would have administrative challenges if at all possible. Also, i feel its quite unlikely that some one in my company will take on the existing lease, especially since the after market for the Vento is not the best in the country and a new car with the similar configuration now, come with more bells and whistles for a lot less than what it costed in 2012. Therefor, i foresee getting to a reasonable settlement valuation for the 18 month old car may come with its own challenges.

[for_cars1]

Originally Posted by akshay_ritz

.... I have always believed this to be a bad idea. Howsoever you may love your car it's a depreciating asset.

Companies claim depreciation for cars on their payrolls and also get to retain employees so it's big gain for them. Please remember income tax saving investments are so that you can secure your and family's future by investing in your future. Here you don't invest any money for growth but rather pay high Emi every month on an asset that depriciates 30% the day it moves out of the showroom.

Banks love it since they get to charge absurd rates and it's a safe bet. Companies love it since they get to claim depreciation and retain employees. Employee pays beyond his means since it's a 0 downpayment car. ....

+1, At best, lease option is marginally beneficial under the following conditions:
1. You plan to (and manage to) complete the entire duration of the lease without closing out in between.
2. The lease plan is such that the interest rates charged is very less by the company. (I've known lease schemes with very low/nill interest rates upto a certain threshold amount, before the recession hit)

1. Generally, most lease schemes are designed to levy heavy penalty on pre-closure, so if you opt out mid way, you stand to lose a lot.
2. The rate of interest levied by the leasing company is very high (13 to 14%) and greatly reduces the tax benefits on the EMI.
3. For a home-office-home type of person where typical usage is like 8 to 10 thousand KM /year, the tax savings on fuel and maintenance during the lease tenure would be marginal.
4. You don't save on NCB transfer (if you have one) and will end up with a second hand car at the end of the lease.

At the end of the day, lease option makes your life a lot more complicated for the marginal benefits that you may get. Certainly not good for salaried individuals with low running/usage per year.

A lot more hassle free option would be to partly fund car purchase from savings and finance the rest through a bank loan like SBI where they don't charge for pre-payment.

[zenren]

Originally Posted by for_cars1

At the end of the day, lease option makes your life a lot more complicated for the marginal benefits that you may get. Certainly not good for salaried individuals with low running/usage per year.

A lot more hassle free option would be to partly fund car purchase from savings and finance the rest through a bank loan like SBI where they don't charge for pre-payment.

Another point to note here: it also depends on your annual salary. If you earn enough to have the entire EMI and maintenance expenses (even insurance premium is eligible for tax benefits) as part of the 30% tax bracket, then lease option is still attractive over a regular car loan; otherwise the considerable savings is not really applicable to you.

Regarding the second owner scenario at the end of lease completion, it is an issue only for those who want to sell the car off a few months after the completion of the lease. I know folks who sell off the car after the completion of lease period and buy another car on the lease. For them, it is still a single owner vehicle when they sell it since they transfer the ownership of the car directly into the buyer's name. For others (like me) who still continue to use the same vehicle after the lease by transferring to my own name, a 7+ year old car's resale value is not too different whether it is a single owner or second owner. At that stage, it is the condition of the car and the km covered that really matters.

[amit_arya]

Hi

My car lease (Dry) is about to expire. I have been asked to deposit the RV and i would get the relevant forms to transfer the vehicle in my name in 30 days. in between this time my insurance expires.

Can any one suggest to to play this in the least expensive manner. I need to renew insurance in name of my employer for 30 days and then would need to buy a fresh insurance in my name (once the vehicle in on my name)?

but do insurance companies allow insurance for less than a year?
any insurance guru or anyone who has dealt with normal closure of dry lease please enlighten me on the process?

Ps. I did not start a new thread as i think those considering leasing would be interested in this topic as well and hence questioning on this thread makes sense.

[pannags]

Originally Posted by deep_bang

For example, if you buy a dzire for 8L, and sell it at 5.5L after 3 years, you lose 2.5L - is that fair enough? And you probably have saved the same on tax in the same period. If you play it right - you will get a near 0 cost of ownership.

You nailed it deep_bang.

I've been contemplating opting for a lease plan for an EcoSport. My earlier company used to bear all costs over and above the ex-showroom and insurance for the through lease period as a benefit to the employee (only the managerial grades). That summed up to a great benefit for a 3 year term.

I know of a company that charges a measly 1% as residual value.

[swiftnfurious]

I want to learn more about this process and I have been giving it some serious thoughts now a days since I am eligible for this.

Questions I have.

1. Do we need to get all the details from the showroom (price details) + contact of the SA or the Lease agency takes care of everything once you mention the make & model that you wanna buy?

2. What about the models which have discounts? Do the lease agency work out those and get us the better price or they do NOT bother?

3. How about insurance? Personally, we can get better rates but would the agency bother about getting a better quote?

4. Is the insurance renewal cut again from our salary every year?

5. How about delivery of models with high waiting period? Do these guys get a faster allocation?

6. Do I need to allocate all the amount for the lease in April (financial year beginning) itself? And what if I buy the car 6 months later or choose NOT to buy later?

[rohanjf]

1 and 2. Leasing company will not bother to ask the dealer for discount. Higher the leasing amount, higher their profit from interest. But they will happily pass on the discount to you, if you bargain with the dealer directly and give the dealer's quotation to leasing company. Note that some leasing companies have tie ups with certain dealers. So make sure that you inform the dealer about leasing company and vice versa.

3. If your employer offers insurance as a part of the offer, good for you. You do have the option of taking your own insurance and pay for it, either on your own (if the leasing company allows) or through leasing company.

4. yes if you opt for insurance through leasing company.

5. yes, especially if the dealer and leasing company has a tie up

6. I am not sure because I got my car in two days. As far as I remember, lease rental is deducted from the time you apply for it, even if there is waiting period. If you choose to opt out, I think the usual cancellation policy applies.

[zenren]

Originally Posted by swiftnfurious

4. Is the insurance renewal cut again from our salary every year?

6. Do I need to allocate all the amount for the lease in April (financial year beginning) itself? And what if I buy the car 6 months later or choose NOT to buy later?

Since Rohan has already answered most points, I'm only referring to points not covered already.

On #4, insurance would be cut from the salary if your lease supports a car maintenance allowance. Again, this becomes tax-free. It is up to you where to renew your insurance but usually, it is hassle free to have the default option since you are not the owner of the car and any insurance claim would typically need to be counter-signed by your HR department since the company owns the vehicle technically. With a new insurance provider who could come up with new rules, it would be a pain going back and forth with HR department to get it sorted out. With the default option, they would already be familiar with the process.

Another point here is the transfer of NCB after claiming the lease. Typically, the default option would have a way of transferring the NCB on your car to your name if you get a letter from HR once the lease completes and you change the ownership to your name. Check with others in your company who completed lease already to see how easy it is in your case. If you go with the "best price" offering, they might throw the rule book at you and you'll end up sacrificing NCB at the end of the lease period. In my case, the default was Bajaj Allianz and they didn't have an issue with it.

On #6, it starts from the month where you make the full payment which would be typically at the time of delivery in case of models with waiting period. I know a couple of cases where the preferred showroom of the leasing firm settled for a nominal/no booking amount because it is a corporate client and the entire payment was done once the vehicle was available in the dealership.

Coming to the allocation, your payroll team would be able to reallocate your salary break-up once you start the lease, even if it is not in April. In any case, you are only eligible for pro-rated annual amounts from the start date of the lease if the lease period doesn't cover the entire fiscal year. This would be applicable even in the last year of lease where it would be completed in a few months from April. You can only claim amounts proportional to the period covered under lease in that FY.

[condor]

I was calculating the EMI for a CLC option, using the calculator provided by the CLC financer. The monthly EMI inlcudes a 14.5% VAT + Service tax. If the approx tax savings is only 15%, then is it still worth going in for a CLC ?

[blorebuddy]

I think 15% saving + tax you save on maintenance and Fuel.
Assume you spend 20000 approx on maintenance (assuming 2 services in a year and each service costs approx 10000) and you spend monthly 5k on fuel, there is a tax saving of 24000 per year

[condor]

blorebuddy : I think 15% saving + tax you save on maintenance and Fuel.

Amount covered under maintenance depends on the lease terms. A rough calculation I got is that if I lease a car today for a 3 year term, the net outgo for me at the end of 3 years is equivalent to the OTR price of the car. Hence I would save the interest that I would have had to pay.

Compared to this, the car I took on lease a few years back, the net outgo was equivalent to the ex-showroom price of the car. The recent VAT & FBT has caused a drop in the benefits that we now get.