Car: Cash vs Loan vs Lease
All three ways to pay for the same car, as one cost each over the years you keep it — counting what the money could have earned, and what you get back on resale.
The defaults are the real example from cash vs loan vs lease: the best way to buy a car. Education only — not advice.
The car
Defaults are the worked example from the article.
all-inclusive quote
of on-road price; 40–50% is typical at 5 years
Add detail — what your money earns elsewhere
post-tax, on money not spent up front
Cheapest way to pay, over 5 years
Paying cash is cheapest
₹10.03 L between the cheapest and dearest route
How this is worked out. Each route's figure is everything you pay over 5 years, with every rupee grown at the 8% it could have earned elsewhere, minus what the car sells for at the end. The lowest total is the cheapest way to pay.
₹13.65 L now, ₹6.14 L back on resale
₹1.65 L down + ₹24,765 × 60 EMIs, ₹6.14 L back
₹32,599 × 60 months, nothing back
EMI on the loan
₹24,765
Resale value
₹6.14 L
45% after 5 years
- Cash
- ₹13.92 L
- Loan
- ₹14.48 L
- Lease
- ₹23.95 L
- Spread
- ₹10.03 L
Future value of outflows at the horizon, net of resale · estimate, not advice · jpvfin.com
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Why the return matters so much: paying cash gives up whatever that money would have earned, and a loan only wins if that earning beats the loan rate after tax. Leasing bundles insurance, road tax and servicing, so compare it against cash plus those costs, not against the sticker price. The full reasoning, with the same example, is in cash vs loan vs lease: the best way to buy a car.
Estimate only. Each route is the future value of its cash outflows at the horizon, at the investment return you set, minus the resale value where you own the car. Excludes insurance, servicing and road tax on the cash and loan routes (they are inside the lease rental), GST input credit for businesses, and any lease buy-back option. Not a recommendation.
Cash is not free
Handing over ₹13.65 lakh means that money stops earning. At 8% a year that is about ₹6.4 lakh of growth forgone over five years — more than the ₹2.86 lakh of interest on the loan. Whether cash still wins depends on what you would honestly have earned, which is why that one input decides the answer.
When the loan wins
Only when your post-tax return beats the loan rate for the whole term. With an 8.75% loan that means clearing roughly 9% after tax, reliably, for five years — a high bar for most people. Dealer-subsidised rates and short tenures shift it; a “zero-cost” scheme usually hides the cost in a forfeited discount.
What a lease actually includes
The rental in the example — ₹32,599 a month — bundles zero-depreciation insurance, road tax, registration and servicing, and the car stays in the lessor's name at a company RTO rate. Compare it against cash or loan plus those running costs; against the sticker price alone it always looks terrible.
Resale is a third of the answer
On the cash and loan routes you get the car back to sell. The default assumes 45% of on-road price after five years, typical for a mainstream petrol model; diesel, luxury and unpopular models fetch less. Lower it and the lease closes the gap; raise it and owning pulls further ahead.
Frequently asked questions
Is it cheaper to buy a car with cash or on a loan?+
Cash, unless the money you would have spent can reliably earn more than the loan rate after tax. At an 8.75% loan and an 8% return, cash is cheaper on the example car by about ₹56,000 over five years; at a 14% return the loan wins. The calculator states which, for your numbers.
Why does leasing cost so much more?+
Because the rental bundles insurance, road tax, servicing and the lessor's margin, and you own nothing at the end. Compare it against cash or loan plus those running costs, not against the sticker price. It can still make sense for a company with GST input credit or for someone who wants a new car every three years without the resale hassle.
What resale value should I assume?+
Roughly 40–50% of on-road price after five years for a popular petrol hatchback or sedan from a mainstream brand; lower for diesel, luxury badges and unpopular models; higher for a few Maruti and Toyota models. Check listings for a five-year-old example of the exact car.
What does 'what your money earns' mean here?+
The opportunity cost. Paying ₹13.65 lakh in cash forgoes whatever that money would have earned invested; taking a loan lets it stay invested but adds interest. Every route is therefore converted into a future value at the horizon so they can be compared on one line.
Does the calculator include insurance and servicing?+
Only inside the lease rental, where they are bundled. Cash and loan routes exclude them because they are the same either way; add them mentally if you want an all-in figure for owning.
Is a car loan tax-deductible?+
Not for a salaried individual. Self-employed people and businesses can claim interest and depreciation where the car is used for business, which changes the loan route materially; that is outside this calculator.
Sources and references
- Default figures — ₹13,65,421 on-road, ₹12 lakh loan at 8.75% for 5 years with ₹2,85,881 interest, and the ₹32,599 lease rental — are the worked example in the car article, which cites the manufacturer and lessor quotes used. The calculator reproduces that interest figure to the rupee.
- EMI on the standard monthly-reducing formula; see the EMI calculator.
Disclaimer: Educational only, not financial advice. Excludes insurance, servicing and road tax on the cash and loan routes, GST input credit, business-use depreciation, and any lease buy-back. Resale value is an assumption you set.
Related: EMI & prepayment · Credit card minimum payment