The Leasing Hype: Why ₹36,000 a Month Sounds Attractive
Imagine you want to drive a car worth ₹20 lakhs. Instead of paying a hefty down payment and taking a loan, a leasing company offers you a monthly lease of ₹36,000. The pitch is simple: no large upfront cost, hassle-free maintenance, and flexibility to upgrade after a few years.
On the surface, ₹36,000 a month feels manageable — it’s like paying rent for your car, similar to how you pay rent for your home. No worries about depreciation, resale, or loan interest. Just pay monthly and drive away.
But as with many things in personal finance, the devil is in the details. Let’s break down the numbers to see what leasing really costs you over time.
Crunching the Numbers: Leasing Cost Over 5 Years
Leasing contracts typically last 3 to 5 years. For this example, we’ll consider a 5-year lease at ₹36,000 per month.
| Parameter | Value |
|---|---|
| Monthly Lease Payment | ₹36,000 |
| Lease Duration | 5 years (60 months) |
| Total Lease Cost (₹36,000 × 60) | ₹21,60,000 |
| Additional Charges (Maintenance, Insurance, Taxes)* | ₹19,000 approx. |
| Total Estimated Cost Over 5 Years | ₹21,39,000 |
*Maintenance, insurance, and taxes are often bundled or charged separately in leasing contracts. Here, we assume a nominal ₹19,000 over 5 years for simplicity.
So over 5 years, you will have paid roughly ₹21.39 lakhs for the car you never own. This is the first eye-opener.
Buying the Car: The Real Cost After 5 Years
Now, let’s compare this to buying the same ₹20 lakh car with a down payment and a car loan.
Suppose you pay a down payment of ₹4 lakhs and take a loan of ₹16 lakhs at 9% interest for 5 years. Using the Loan versus FD App’s Car Loan Calculator, your monthly EMI would be approximately ₹33,000.
Over 5 years, you pay:
- Down Payment: ₹4,00,000
- Total EMI Payments (₹33,000 × 60): ₹19,80,000
- Total Outflow: ₹23,80,000
At first glance, ₹23.8 lakhs looks more expensive than leasing’s ₹21.39 lakhs. But here’s the crucial difference — you own the car at the end of 5 years, and the car still has resale value.
Accounting for Resale Value
Cars depreciate quickly, but not to zero. On average, a new car loses about 15-20% of its value every year. After 5 years, the car might retain around 40-50% of its original price depending on the make, model, and condition.
Assuming a conservative 45% resale value after 5 years:
- Resale Value = 45% × ₹20,00,000 = ₹9,00,000
- Net Cost of Car = Total Outflow - Resale Value = ₹23,80,000 - ₹9,00,000 = ₹14,80,000
This means the effective cost of owning the car for 5 years is ₹14.8 lakhs — significantly less than the ₹21.39 lakhs paid for leasing.
Impact of Reducing Balance Loan Interest
Unlike lease payments, which are fixed and do not build ownership, car loans work on a reducing balance basis. Each EMI partly repays the principal, reducing the interest charged over time.
This means the interest burden decreases every month, making your loan cheaper in the later years. Leasing payments, however, remain constant with no ownership benefit.
Summary: Leasing vs Buying Cost Comparison
| Aspect | Leasing (5 Years) | Buying (5 Years) |
|---|---|---|
| Total Payments | ₹21,39,000 | ₹23,80,000 (Down payment + EMI) |
| Ownership After 5 Years | None | 100% Ownership |
| Resale Value | ₹0 | ₹9,00,000 (Approx.) |
| Net Cost | ₹21,39,000 | ₹14,80,000 |
Why Leasing Feels Lighter but Costs More
The allure of leasing is the lower monthly payment compared to a hefty down payment or a high EMI. Many people prefer the psychological ease of paying ₹36,000 every month rather than arranging ₹4 lakhs upfront.
However, this convenience comes at a steep price:
- No Asset Ownership: Lease payments are pure expenses, building no equity.
- Depreciation is the Lessor’s Concern: You pay for depreciation indirectly through lease fees, but never benefit from residual value.
- Long-Term Cost is Higher: Over 5 years, leasing can cost over ₹6.5 lakhs more than buying after adjusting for resale value.
- Inflation Impact: Lease payments do not reduce in real terms, unlike EMIs which become easier to pay as inflation erodes money’s value.
Inflation and EMI: Why Buying Gets Cheaper Over Time
One important financial concept often overlooked is the impact of inflation on loan repayments. Inflation reduces the real value of money over time, which means the fixed EMI you pay every month becomes “cheaper” in real terms.
For example, if inflation averages 6% per year, then ₹33,000 paid today will feel like approximately ₹24,700 in purchasing power 5 years from now.
Leasing payments, however, often remain fixed or increase with inflation, but you gain no asset at the end. This makes buying with a loan a smarter long-term financial decision.
Real-World Scenario: Rajesh’s Car Decision
Rajesh, a 35-year-old software engineer, was tempted by a car lease offer promising a stylish SUV at ₹36,000 per month with zero down payment. He thought, “Why pay a big down payment when I can just lease and upgrade every 3 years?”
But after using the Loan versus FD App’s Car Lease vs Buy Calculator, Rajesh realized:
- Leasing would cost him ₹21.39 lakhs over 5 years with no ownership.
- Buying with a ₹4 lakh down payment and a 9% loan would cost ₹14.8 lakhs net after resale value.
- He could invest the down payment in a fixed deposit or mutual fund, earning compound returns while paying the loan EMI.
Armed with this data, Rajesh chose to buy the car, saving over ₹6.5 lakhs in real cost and gaining an asset he could sell or keep.
When Can Leasing Make Sense?
Leasing isn’t always a bad choice. It can be beneficial if:
- You need a car for a short duration: If your job or lifestyle demands frequent upgrades or you plan to move cities, leasing offers flexibility.
- You want to avoid maintenance hassles: Leases often include maintenance and insurance, reducing unexpected expenses.
- You have cash flow constraints: If you cannot arrange a down payment or loan, leasing provides access to a car without upfront capital.
- You prefer newer models: Leasing allows you to drive newer cars every few years without worrying about resale.
However, these benefits come at a financial cost, and you should weigh them carefully against your long-term financial goals.
Comparing Leasing and Buying: Key Financial Metrics
Below is a comparative table summarizing the financial pros and cons of leasing vs buying:
| Metric | Leasing | Buying |
|---|---|---|
| Upfront Cost | Usually Nil or Minimal | High (Down Payment) |
| Monthly Payment | Fixed Lease Rent (₹36,000 in example) | EMI (₹33,000 approx.) |
| Total Cost Over 5 Years | ₹21.39 lakhs | ₹23.8 lakhs (before resale) |
| Ownership After 5 Years | None | Full ownership |
| Resale Value | ₹0 | ₹9 lakhs (approx.) |
| Flexibility | High (Easy upgrades) | Low (Long-term commitment) |
| Maintenance & Insurance | Often included | Owner’s responsibility |
| Impact on Credit | May or may not affect credit | Builds credit history |
Visualizing Cost Over Time: Lease vs Buy (5 Years)
Below is a simple bar graph comparing cumulative costs over 5 years:
Key Takeaways for Smart Car Financing
- Don’t be fooled by low monthly payments: Leasing can feel affordable month-to-month but costs more in the long run.
- Ownership matters: Buying builds equity and lets you recover some cost through resale.
- Loan interest is reducing balance: Your interest burden decreases every month, unlike lease payments.
- Inflation helps you: EMIs become easier to pay over time as inflation erodes money’s value.
- Use calculators to decide: Always run the numbers yourself before committing to leasing or buying.
- Consider your lifestyle: Leasing offers flexibility but at a higher cost; buying is better for long-term use.
Final Thoughts: Don’t Let Leasing Drain Your Wealth
Leasing a car at ₹36,000 per month might seem like a smart, hassle-free choice. But when you do the math, it silently drains your wealth to the tune of over ₹6.5 lakhs compared to buying with a loan — and that’s just the financial side.
At the end of 5 years, you own nothing, while your friend who bought the car can sell it and recover a significant portion of the cost. This difference can be the foundation of your long-term financial health.
So next time you hear an influencer say leasing is smarter, don’t just listen — calculate. Use the Car Lease vs Buy Calculator on the Loan versus FD App to see the real numbers.
Your financial future deserves more than catchy slogans. It deserves clear math and smart decisions.
Download the Loan versus FD App today and make smarter financial decisions with confidence.
