For most people, buying a car entails figuring out the down payment and loan that they will need to take. However, most are not aware that they can even buy a car without making a down payment. They simply have to pay less amount of money overall for the same car. And the savings can run into millions of rupees if you are buying a supercar. Sounds unbelievable, right? Let us figure out together, how in the hell is that possible.
Have you ever considered leasing a Car?
In India, the usual way of driving a car is by either buying it or renting it out. The “renting a car” is also a recent phenomenon, because of the recent infusion of investors’ capital in many car rental startups. Leasing a car is an option many people don’t even think as let alone exercise. Car leasing can really be the option that will push you over to buy the supercar of your choice. Do note that leasing a car is mainly beneficial only for businesses and self employed individuals. It works only because of loopholes in our famed tax system and is not helpful for salaried folks.
Lease v/s Loan
Now let us get to the basics – the price calculations. Whenever we take a loan, we have to make down payment and figure out the monthly cost of EMIs. In U.S., car prices have become so high that more people are opting out for leasing a car instead of buying one. According to Team-BHP, if you lease a Rs. 5 lac sedan, then you stand to save around Rs. 10,000 without paying any down-payment. Usually, down-payment for Rs. 5 lac sedan will be Rs. 1 lac, so the opportunity cost of this amount will be a cherry on top. Going by the same math as Team-BHP, it is safe to say that on a BMW of Rs. 50 lacs, one can save up to a lac
Lease Drilled Further
There are two types of lease one can opt for:
- Finance Lease, and
- Operational Lease
A finance lease means that you can borrow money from a lender to buy a car, whereas operational lease means using the car for the lease period and not owning it. Operational lease works well for big organizations, since their requirements and budgets are more suited for it. In an operational lease, the lender owns and maintains the car but lets you use the car for a stipulated time period. However, in a finance lease, you just get money from a lender to buy the car and the ownership of the asset is transferred to the lessee at the end of the lease term.
If you are a business owner or an organization that needs cars to manage the day-to-day operations, then getting a car leased is a lucrative option. Doing this would make sense, for the following reasons:
- One can get tax benefits for showing the money spent on opting for operational lease, in your ‘Profit and Loss’ statement and save as much as 30% in taxes.
- One can opt for leasing agreement that allows them to buy the car at the end of the lease tenure.
- Avoid putting a down payment at the start, freeing a lot of capital that can be used by the business for other purposes.
- Operating lease come with a lot of add-ons that will cover maintenance, service, drivers, insurance, etc., making it easier to own a fleet of cars and save big millions.
If you factor in the opportunity cost of capital, the tax benefits one can gain and the ease of ownership, leasing a car makes a lot of sense, especially if you are a businessman. One can own an expensive car, bill the monthly lease EMI as a business expense and literally own it without really buying one.