Car Loan vs Car Leasing in India: Which Costs Less?

For most people who pay from their own post-tax income and keep a car for five years or more, a car loan costs less than leasing, because you own an asset with resale value at the end. Leasing makes more sense when you change cars often, want no resale or maintenance hassle, or can lease through your employer's salary structure and are in a high tax slab. The answer depends on three numbers: the monthly rental, the car's resale value and your tax rate.

For rates, eligibility and documents for car loans, read our car loan guide. This article compares the two routes.

How each option works

Car loan: You buy the car, pay a down payment and repay the rest in EMIs, usually over three to seven years. The bank's hypothecation is marked on the registration certificate until you repay. You pay for insurance, servicing and repairs, and you keep or sell the car.

Car lease (personal): A leasing or subscription company buys and registers the car, and you pay a fixed monthly rental for an agreed period, often 24 to 48 months. Plans such as Maruti Suzuki Subscribe, run with partners like ORIX and Myles, typically bundle registration, insurance, maintenance and roadside assistance. At the end you return the car, and in some plans you can buy it at a pre-agreed price.

Car lease (through employer): Your employer leases the car from a leasing company and the rental is paid out of your cost to company (CTC). Because it is part of your salary package, the tax treatment is different, as explained below.

Side-by-side comparison

What a car loan costs in 2026

As of 15 October 2026, SBI lists new-car loan rates of 8.55% to 9.50%, depending on credit score and tenure, a week after RBI raised the repo rate to 5.50%. Car loans at most banks are fixed-rate, so the EMI does not change during the loan. A fixed-rate loan may carry a foreclosure fee, which must be shown in the Key Facts Statement.

What a lease costs

Lease rentals are quoted per month for a fixed tenure and kilometre allowance. Rentals depend on the car, city, tenure and the provider's assumed resale value. Older Maruti Subscribe plans started around ₹11,000 to ₹15,000 a month for small hatchbacks; mid-size cars and SUVs cost considerably more. Lease rentals also carry GST, which the provider builds into the quote. Ask for a GST-inclusive monthly figure and a written list of what is excluded.

Worked example: five years, ₹12 lakh car

Arjun wants a car with an on-road price of ₹12 lakh and plans to keep it for five years. All figures are illustrative.

Option 1: buy with a loan

• Down payment (20%): ₹2,40,000
• Loan: ₹9,60,000 at 8.70% for 60 months
• EMI: ₹19,789; total EMIs: ₹11,87,312 (interest ₹2,27,312)
• Insurance and maintenance over five years (assumed): ₹2,50,000
• Resale value after five years (assumed): ₹5,50,000

Net cost = ₹2,40,000 + ₹11,87,312 + ₹2,50,000 − ₹5,50,000 = ₹11,27,312

If Arjun had invested the ₹2.4 lakh down payment at 7% instead, it would have earned about ₹96,600 over five years. Adding that opportunity cost, buying costs about ₹12.24 lakh.

Option 2: personal lease

• Rental, including insurance and maintenance (assumed): ₹24,000 a month
• Total over 60 months: ₹14,40,000
• Resale value: nil

Buying is about ₹2.2 lakh cheaper after counting opportunity cost. Leasing wins only if the car's resale value turns out far lower than assumed, or if Arjun values not dealing with servicing, insurance renewals and resale.

Option 3: lease through employer (CTC lease)

Arjun is in the 30% slab, so his marginal rate with 4% cess is 31.2%. His employer leases the same car (engine up to 1.6 litres), pays ₹24,000 a month from his CTC and meets the running costs. He uses it for official and personal travel.

• Salary reduced by the rental: ₹24,000 a month
• Taxable perquisite added back: ₹5,000 a month
• Net reduction in taxable income: ₹19,000 a month, or ₹2,28,000 a year
• Tax saved: ₹2,28,000 × 31.2% = ₹71,136 a year, or about ₹3.56 lakh over five years

Effective lease cost = ₹14,40,000 − ₹3,55,680 ≈ ₹10.84 lakh, which is lower than buying. The benefit shrinks sharply for someone in a lower slab, and it applies only if your employer offers a CTC lease and the perquisite rules are applied correctly. Compare your own loan EMI in our EMI calculator.

The 2026 perquisite rules: what changed for leased cars

The Income-tax Rules, 2026, notified on 20 March 2026 under the Income-tax Act, 2025, raised the taxable value of a car provided by an employer (owned or hired) that is used for both official and personal purposes. As of October 2026:

These values replace the old Rule 3 figures that applied until 31 March 2026. They apply to existing leases too, so employees who signed a CTC lease earlier now pay more tax than they planned. In our example, the old ₹1,800 value would have saved about ₹83,100 a year instead of ₹71,136.

If the car is used only for personal purposes, the perquisite is generally the actual cost to the employer, which removes most of the benefit. These valuation rules apply whether you choose the old or new tax regime. Check your employer's policy and get advice if the amounts are large.

When leasing makes sense

• You change cars every two or three years and dislike the hassle of reselling.
• Your employer offers a CTC lease and you are in the 20% or 30% slab.
• You are moving cities often or are unsure how long you will need a car.
• You want predictable monthly costs that include insurance and servicing.

When a loan makes more sense

• You keep cars for six years or more, when the loan is over and the car still has value.
• You drive more than the lease's kilometre limit.
• You want to modify, sell or lend the car freely.
• You can make a meaningful down payment and get a good rate because of a strong credit score. Our guide on how to get the lowest loan interest rate explains what lenders look for.

Questions to ask before signing a lease

1. What exactly is included, and is the quoted rental inclusive of GST?
2. What is the annual kilometre limit and the charge per extra kilometre?
3. How long is the lock-in, and what is the early-exit fee?
4. Who pays for accident repairs and the insurance deductible?
5. What happens to the lease if you leave your job (for a CTC lease)?
6. Is there an option to buy the car at the end, and at what price?

Key takeaways

• For most individuals paying from post-tax income, a car loan costs less than a lease over five years because you keep the resale value.
• In our illustrative example, buying a ₹12 lakh car cost about ₹12.2 lakh net, against ₹14.4 lakh for a personal lease.
• A CTC lease can beat buying for people in the 30% slab, but the Income-tax Rules, 2026 cut its advantage by raising perquisite values to ₹5,000 and ₹7,000 a month.
• Compare leases on the GST-inclusive rental, kilometre limit, lock-in and exit charges.
• As of October 2026, SBI's new-car loan rates were 8.55% to 9.50%, fixed for the term.