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  1. Rushabh
  2. Finance, Insurance
  3. Tuesday, September 09 2014
Dear Sir,

I had a query regarding financing a purchase of new car. Whether purchasing on loan is a better option as compared to leasing a car. What is the difference in total payment in both the option at the end of the tenor (i.e. lets say a tenor of around 3 years to 5 years). I am planning to buy a petrol variant of compact sedan (Xcent or Dzire or Zest) roughly costing to 6.4 lakhs for the second variant. Which mode of payment is beneficial for saving and using the car solely for my personal use.

looking forward to hear from you soon on this.

Thanks and regards.
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Hello,

Car Finance is basically buying a car wherein funds are borrowed to buy a car, The actual owner in car finance remains the original buyer of the car.

Car Lease is like buying a car on rent and paying monthly rentals for same, while in leasing the ownership remains in name of lessor company and car needs to be returned back to the lessor company after the lease tenor is over

There is a significantly higher amount paid in Car Finance unlike Leasing where the entire amount is paid by lessor or taking lower margin. ,

Below are Excerpts from one of old article on Leasing -- should help you answer your queries

Car leasing is a service contract to use the car for a pre-determined period of time by paying on monthly rentals.
Lessor is the company who lease the car and Lessee is the user who's using the car.

Note - In a Lease aggrement , one does not owe the car as ownership of the car remains in name of Lessor in the registration and insurance documents.

Benefits of Leasing a Car

> One of the immediate benefit is Zero Down Payment. Yes, there are leasing plans offered to customers with virtually zero down payment.

> Excitement to own a new car every 3 - 4 years

> One Major Benefit is Tax Saving which unlikely is not possible in Car Finance. Income Tax Law says that Lease Rentals can be treated as expense. Hence, major benefit for corporates and companies to buy car on lease. However, flip side is that you dont own a car hence no depreciation benefit is available on Car Lease.

> Hassle free transaction of owing a car till lease period and returning back to lessor at end of lease. No worries about selling car or higher maintenance cost after 3 to 4 years

> The Lease plan also covers the warranty till end of lease period giving you hassle free in case of repairs cost or any major breakdown cost

Disadvantages of Leasing

> The car will be taken away from you at the end of lease period. If you have developed some sort of affinity , you may have to buyback the car which is generally at a higher price

> Some of the lease plans has fine terms and conditions - Driving for a specific set of kms say 40,000 kms for 3 years or 50000 kms for 4 years or whichever is earlier. Another condition could be about car maintenance and informing leasing company in case of any major bump on the car

> If you are Salaried, there are no tax benefits on Lease Rentals.

> Lease could be benefical for a short period. A Lease of 4 yrs may involve a significant outflow to tune of 80-85% of value of car

> There are many other Fine terms and conditions which may vary and should be clearly read and understood before signing a lease contract.


  1. more than a month ago
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