Wheels for a steal: To buy or to rent?

With changing lifestyles and growing frequency in change of job locations, more and more people are abstaining from buying cars.

To buy or to rent? The question can be asked for most things: homes, household appliances or vehicles. With changing lifestyles and growing frequency in change of job locations, more and more people are abstaining from buying cars.

Automobile companies such as Hyundai, Mercedes, Mahindra and Mahindra, Fiat and Skoda are offering leasing services, according to Darshini Kansara, research analyst at CareRatings, a research agency. Let’s decode the concept of taking a car on lease.

HOW DOES IT WORK?

In this scheme, you can lease car directly from the manufacturer without worrying about the resale value, down payments and equated monthly instalment (EMIs). The legal ownership of the car remains with the manufacturer.

“This service will work for you if you need to relocate to another city for two-three years and you would need a car for daily commutation,” said Vikas Jain, national sales head, Hyundai Motor India Ltd.

You can pick a car of your choice on the manufacturer’s website after considering the model, subscription amount, mileage and charges.

The charges are for rental, insurance cover, car switching and maintenance. “Insurance premium is for three years—we divide that amount and charge the customer on a monthly basis, only for the months he or she keeps the car,” said Jain. You can also switch the car models depending on your manufacturer. Its cost is based on customized calculation factoring usage, inclusions and exclusion.

“Suppose the on-road price of the car is ₹50 lakh approximately. Under loan, you will pay ₹1.19 lakh EMI with total outflow of ₹60 lakh in three years, including down payment and recurring cost of insurance and maintenance. In comparison, you can pay rent of ₹1.05 lakh with outflow of only ₹37 lakh in three years and the car is returned at the end,” said Prasad Salunke, head of sales and marketing, Daimler Financial Services. With Mercedes, you have the option to own the car by buying from dealer at fair market price, said Salunke.

SHOULD YOU RENT IT?

Car on lease works if you do not want to have the car for long term. If you are sure you want to use the car only for two-three years, then you can consider it after evaluating your cash flow.

Otherwise, it may be expensive. For example, Hyundai Creta E+ 1.4 CRDI, for a 48-month contract will cost ₹42,700 monthly (inclusive of road tax plus goods and services tax; services are optional by paying an additional monthly fee) and the total amount you shell out will be ₹13.04 lakh.

If you opt for the same version for purchase on loan, you would need to make a down payment of ₹3.85 lakh and pay an EMI of ₹15,521 for five years. The total amount you end up paying is ₹11.31 lakh. “In case you want to keep the car for the long term, which would be seven years or above, then buying the car would be a more viable option. Consider that you wanted to keep it for a longer term than that, the cost of depreciation you incur annually will be much lesser than the subscription amount,” said Pawan Agrawal, founder of Investguru.in, a financial advisory firm. This is not a one-fits-all options, so do the math before opting for it.