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Car lease vs. financing: Which is better?

Team Ackodrive26, Jul, 2021

Owning a car has become easier and convenient thanks to flexible car loans or car financing options available at your disposal. You can own a car with limited funds and pay the rest of the price in easy instalments. But with the emergence of the sharing economy, now you have the option of leasing a car. Leasing is somewhat similar to renting a car. Read ahead for more details about car lease and car financing as we throw light on key differences between the two buying options.

Car lease vs. car loan

Car lease has gained popularity in the past few years. It is because leasing a car is more straightforward than applying for a car loan. Moreover, you need not worry about car maintenance, car insurance, etc., as the leasing firm will take care of those things. You have to return the car to the leasing firm at the end of the lease tenure. A car lease is ideal only for short-term usage. It can be an expensive affair if you're looking to lease a car for the long term.

On the other hand, applying for a loan and waiting for the approval of the loan can be a tedious task. But on the flip side, you legally own the car after the end of the loan tenure. In other words, you can consider the repayment of a car loan (EMI) as an investment. On top of that, you will have the satisfaction of buying your dream car.

Car lease: What is it? How does it work?

In layman's language, leasing a car is somewhat similar to renting an apartment. That means you only need to pay the monthly rental to drive the vehicle of your choice. Here’s how the car lease works.

  • You need not pay a substantial down payment to lease a vehicle.

  • You can drive a car of your choice by paying a monthly rent set by the car leasing company. 

  • You need not worry about car maintenance and other costs as the leasing firm owns the vehicle.

  • Can switch cars after the end of the lease agreement.

Car loan: What is it? How does it work?

A car loan is one of the most common and convenient financing options to buy a car. It is a financial product that lets you pay the price of the vehicle in easy instalments. But initially, you have to pay the down payment. The car you purchase acts as collateral for the car loan. Therefore, if you fail to repay the loan, the bank/finance company can take ownership of the car.

Another critical factor of a car loan is EMI (Equated Monthly Installment). EMI is calculated based on the interest charged by the bank/finance company. Lastly, your car loan eligibility depends on various factors such as credit score, income, age, etc.

Difference between leasing and financing a car

Since we have discussed car lease and car loan, let’s look at some of the differences between leasing a car and buying a vehicle on a loan.

Details Car Lease Car Loan
Down payment Not required Down payment is required
Monthly payment (EMI) You pay the cost of usage of the car and for other miscellaneous expenses. You pay the portion of the price of the car.
Limit on mileage The leasing company will set a mileage limit. Additional distance driven will be charged. There is no limit on mileage.
Returning the vehicle You can return the car at the end of lease tenure. You will be the owner of the car at the end of loan tenure.
Ownership You have to pay the amount specified by the leasing firm if you wish to own the car after the end of the lease agreement. You need not pay any extra amount to own the car at the end of the loan period.
Fitment of accessories You may have to check with the car leasing company before you fit any accessories. You can add accessories as per your wish.

Should you lease a car or buy it on a car loan?

Should you lease a car or buy it on a car loan? The answer to this question depends on your requirement. If you are looking for a car for the short-term or switching cars within a year or two, leasing a vehicle is an ideal option. But if you are purchasing the car for long-term usage and want to have the feeling of ownership, buying the car with the car loan makes more sense.

Leasing a car is a cost-effective method of driving a car, provided you are using it for a short time. You have to spend less but have to return the vehicle at the end of the lease agreement. A car lease can be expensive if you opt for a long-term plan, you may spend more than the actual price of the car if you lease a vehicle for an extended period.. 

The total expenditure of buying a car via car loan can be higher than leasing a vehicle. But you can consider the loan amount as an investment as you will have full ownership of the vehicle at the end of the loan period. If you need a vehicle for long-term usage, buying a car on loan is a sensible option.

How to apply for a car loan/lease online?

Applying for a car loan or car lease is a straightforward process. Before initiating the loan/lease process, compare various car loan/car lease options. For a car loan, you can compare the interest rates and tenure offered by the bank/financial institution. In the case of a car lease, you can lookout for a car leasing company that provides the lowest monthly payment option.

To apply for a car loan, follow the steps below.

  • Step 1 -  Visit the official website of the bank/financial institution.

  • Step 2 -  Provide basic personal details.

  • Step 3 - Check eligibility and apply for the loan.

  • Step 4 - The bank will verify your details and get in touch with you to process the car loan.

If you are leasing a car, here are the steps to apply for a car lease online.

  • Step 1 -  Visit the car leasing company’s or car manufacturer’s official website.

  • Step 2 -  Select the car and lease tenure.

  • Step 3 - The car lease firm will contact you with payment details.

In a nutshell

Car lease is an innovative solution if you need a car for the short-term or wish to switch cars in 1-2 years. You will end up paying a lower monthly rent, and there is no hassle of maintenance and other expenses related to the vehicle. But it is not an ideal option if you are looking to drive the car for an extended period. 

A car loan is helpful if you purchase a car for long-term use and want to invest in a single vehicle. You will be the car owner at the end of the loan tenure, plus, you will also have the feeling of accomplishment of buying a car.

To sum it up, buying a car on loan is always better as you will have the ownership of the vehicle at the end of loan tenure. Buying a car means there is no restriction on mileage or fitment of accessories. On the other hand, a car lease comes with restrictions on mileage, accessory fitment, etc. Moreover, you have to return the vehicle in the same condition as when you took the delivery.

Frequently asked questions

Here are some of the most frequently asked questions related to car lease vs car financing.

Can I apply for a car loan to purchase the leased car?

You can apply for a car loan if you want to buy the car leased by you.

I want to lease a car. Is a driving licence mandatory for a car lease?

Yes, a driving licence (DL) is required to lease a car. DL is one of the essential documents to drive a car in India.

What happens if my leased car is damaged in an accident?

Generally, the leasing company does the maintenance and servicing of the car. Similarly, any damages to the leased car will be repaired by the car lease firm. However, it may differ from one company to another.

I am planning to lease an Audi car. Will the monthly rental be higher than other car models?

Audi is a high-end luxury car brand. Hence, the monthly rental will be on the higher side. The monthly rental depends on the market value of the vehicle.

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