With car loan interest rates in India skyrocketing to as high as 13.80%, owning a dream car may be a long shot for many of us. The average price of vehicles has also increased in the automobile market. The Reserve Bank of India (RBI) estimates that the total outstanding vehicle loans amount to a whopping INR 5.09 lakh crore as of May 2023. But we don't have to be scared of the numbers. Gone are the days when buying a car was the only way to own a car. Car leasing is the new trend. Car leasing means that we are renting a car for a limited time.
Pros of Renting a Car
we can swap cars every few years if we don’t want to spend a lot of money on a new one all at once. These are some of the pros of renting a car:
- Lease agreements usually include routine maintenance costs. We don’t have to worry about the hefty car repairs.
- Since lease payments are tax-deductible, car leasing can give a significant tax benefit for small business owners.
- The renter is not required to purchase car insurance or pay tax for the vehicle
- At the end of the lease period, the leaser may even offer to sell the car to us.
- We get to choose from a variety of models at affordable rates
Cons of Renting a Car
Car leasing can seem attractive, but lease agreements have financial pitfalls. Here are some of the cons of renting a car:
- Like all other assets, cars also undergo depreciation. Lease agreements account for that. We will have to pay fees for any wear and tear damage that’s considered more than normal.
- Most lease agreements have a mileage limit ranging between 12,000 and 15,000 miles per year. On crossing that limit, we will have to pay extra bucks.
- We can't get any new upgrades for the car.
- A termination fee is applicable if you decide to end the lease before the termination period.
Conclusion
Nonetheless, the main appeal of renting a car is psychological. You get great satisfaction from having access to a new, dependable car that otherwise you could not have afforded. However, the mathematics of car leasing is not much different from car loans. Leasing provides the short-term benefit of driving a nice new car for lower payments. But it does not lead to permanent ownership of the asset you are investing in.
Disclaimer: The information provided in this blog is for educational and informational purposes only. It may contain outdated data and information regarding the Insurance industry and products. It is advised to verify the currency and relevance of the data and information before taking any major steps. ICICI Lombard is not liable for any inaccuracies or consequences resulting from the use of this outdated information.