Do you want to drive a car with the option of switching models every three to five years? You can now do so by leasing a brand new model. ICICI Bank has launched a new car loan facility, in association with TranzLease, an automobile leasing and mobility solutions company. This auto loan facility is called the ‘Smart EMI’ scheme. It allows you to own a new car at a lower cost compared to a traditional car loan.
Sunil Gupta, MD and CEO of car rental service provider Avis India says, “At present, car leasing has a penetration of less than one per cent in India, mainly driven by corporates. We expect this to pick up now, driven by individual consumers since it offers convenience compared to buying a car. It also saves on maintenance costs.”
What is it about?
The Smart EMI scheme involves paying equated monthly instalments (EMIs) for 36 months (3 years) or 60 months (5 years), depending on the option taken, along with the down payment, insurance and taxes in the first year. The EMI includes the cost of maintenance for the vehicle throughout the tenure and insurance renewals. The scheme deducts the estimated resale value of the car upfront to reduce your EMI. At the end of the tenure, you can either choose to buy this vehicle or surrender.
Ravi Narayanan, Head - Secured Assets, ICICI Bank says, “This is an innovative financing option developed for car enthusiasts to help them to take home a car of their choice on lease without having to worry about financing, insurance and maintenance.” The scheme is extended across car ranges starting from entry level hatchbacks to the luxury segment sedans and sport utility vehicles (SUVs).
At present, the scheme is available for corporates and salaried individuals. The bank plans to extend this offer to self-employed customers as well.
What’s on offer?
You get to ride a brand new model when you opt for the loan plan. For example, a new Maruti-CIAZ model, which costs Rs 10 lakh (ex-showroom price), would come with an EMI of Rs 18,683 (including taxes). You will have to pay a minimum of 10 per cent of the car’s price upfront; the first year’s insurance premium and taxes are to be paid additionally. The cost is inclusive of maintenance expenses. Insurance is comprehensive, with zero depreciation and a consumables cover.
If you want to exit the Smart EMI during the tenure of the loan, the bank and leasing company provide you with two options. The first is buying the car by paying the outstanding loan value. The amount is stated in the contract agreement. Or, you can surrender your car to the leasing company. The difference between the market value of the car and outstanding loan value needs to be paid by you. While closing the scheme, prepaid insurance (if any) and dues (if any) will be recovered from you.
There is a limit on the number of kms you are allowed to drive in a leased car. You need to discuss your average driving in a month and choose the appropriate plan.
The Smart EMI scheme offers a cash back and bonus amount to customers taking this scheme. The bank offers a referral cash back amount of Rs 16,667 per car. While surrendering the car, the scheme offers a guaranteed bonus amount. The amount is calculated by TranzLease based on the minimum resale price at the end of the loan tenure.
When you purchase the same car on a regular loan, there will be additional costs relating of insurance and maintenance.
What doesn’t work?
Leasing may offer convenience to you, but there is no resale option at the end of tenure. Amol Joshi, founder of financial advisory firm Plan Rupee Investment Services says, “After repaying the traditional car loan, you can resell the car in the market. So, you get to earn a certain resale value. In a leased car, you don’t have the option of resale.”
There are caps on the distance you are allowed to drive in a month and if you exceed those, you are penalised by the leasing company with additional costs. The company also reduces the guaranteed bonus amount while surrendering the car at the end of the tenure.
In case of accidents during the tenure of the Smart EMI loan, the guaranteed bonus amount can be reduced. Also, insurance cost is increased, leading to an increase in the EMI.
Sapna Tiwari, Co-Founder and COO, Rupeewiz Investment Advisors says, “While taking a car on loan, at the end of the tenure, you own the car but in a car lease scheme, you own nothing.”
After completing five years, in case you decide to buy the car then you need to arrange for a balloon repayment – a large lump-sum. Alternatively, you can convert the outstanding loan value into an EMI with the bank and continue to pay the interest on it.
Lease a car using the Smart EMI scheme if you simply love to drive a new vehicle every three to five years. Also, the Smart EMI facility is recommended for individuals/families on the move from one city to another with jobs of short tenures (one to three years). They will save on add-on costs, which include registration of the car with the regional transport office (RTO) and other miscellaneous expenses while purchasing a vehicle. Fully understand the costs and the contractual terms.
In case you wish to own the car for the long term, opt for traditional car loan as you will have the ownership after repayment.