Leasing a Bike vs Taking a Loan to Buy a Bike

Covid-19 has put brakes on ambitions of car-sharing (Ola, Uber) and bike-sharing apps (Bounce). With the need for social distancing, the prospects of these companies remain circumspect even after the lockdown is lifted. The businesses must quickly figure out alternative revenue streams. And some of these companies already are.

Bounce (Bike-sharing app) has launched lease rental plans, where you can lease the bike for up to two years and eventually own the bike by making additional payment at the end of the lease term. Here are the various leasing options from Bounce website:


By the way, instead of going for this lease-rental plan, you could have simply taken an two-wheeler loan to own the bike. Which is better?

How Does the Lease Rental Plan Work?

To get the Honda Activa scooter on lease, you must first make a refundable security deposit of Rs 12,000 for a new scooter. In addition, you must pay a processing fee of Rs 1,500. GST will apply on this fee. Rent for the first month is collected in advance. Thereafter, you must pay Rs 3,250 each month for the next 24 months (for 24-month lease). After 24 months, you can simply return the scooter to Bounce (the leasing company). Alternatively, if you want to buy the scooter and retain it, you must pay them Rs 19,872. Your security deposit will be adjusted against the amount.

How much do you pay in total? You pay the refundable deposit of Rs 12,000. You pay a processing fee of Rs 1,500 (plus GST).  In the two years when you have leased the scooter, you pay 24 X 3,250 = 78,000. If you want to own the same bike you pay another Rs 19,872 (your security deposit will be adjusted against this).

To own the scooter after leasing for 2 years, you need to pay Rs 1,770 + 78,000 + 19,872 = Rs 99,642.

By the way, to own the scooter after leasing for 1 year, you need to pay Rs 1,770 + 12*4249+ 38,006= Rs 90,824

Note: I am not sure if the lease rental will attract GST or if the prices mentioned are inclusive of the GST. This can change the equation completely. Before you sign up for this deal, you must figure this out.

What If I Go for a Regular Two-Wheeler Loan?

The on-road price (including registration, road tax and insurance) for Honda Activa in Bangalore will range from Rs 82,000 to Rs 84,000, depending on the model. Let us work with Rs 82,000.

For a proper comparison, let us assume you make a down-payment for the amount you would have paid upfront for the bike rental. Rs 12,000 + 1500 +18% GST + 3,250 (First month rent) =Rs 17,020

If you make a down-payment of Rs 17,020, you will have to take loan of Rs 64,980. I assume you do not have to pay any processing or ancillary charges. An two-wheeler loan for this amount for 2 years (in line with lease rent period) at 10% p.a. will have an EMI of Rs 2,999.

Total amount paid to own the scooter = Rs 17,020 + 24 X 2999 = 88,983

If you add everything up, you will have to shell out Rs 88,983 over the 2 years to own the scooter.

Clearly, the amount paid will be higher if you take out a loan for 3 years.

Which Is Better?

To own the scooter after two years, Rs 99,642 for the lease rental or Rs 88,983 under a regular two-wheeler loan?

This is not complete.

Rs 99,642 (lease rental) includes insurance for both first and second years.

Rs 88,983 (regular loan) includes insurance only for the first year. Add some cost (Rs 3,000-5,000) for the insurance.

Under the lease rental plan, when you decide to buy the plan outright, there might be additional costs. There is not much difference. If I had to pick one, I would pick a regular two-wheeler loan.

Leasing a Bike Offers Flexibility and Convenience

Yes, and that might be important. You might be in the city for only a year or a couple of years. You do not want the trouble of selling your bike or transporting it to another city. Leasing is comfortable that way. I have only considered a new bike. You could have gone for an old bike where the cost is much lower. This facility allows you to test a bike before owning it.

The Usual Caveats

Under the lease, you can ride for only 1,500 kms per month. Anything beyond 1,500 kms shall be charged at Rs 0.5 per km.

What if you take a 1-year and then want to shift to 2-year lease?

Here is what the FAQs mention:

You may choose from our 12 months or 24 months plan. The monthly subscription fees will vary based on the chosen plan. And if you wish to move from one plan to another during the term of your subscription, we’ll adjust your monthly fee according to your new plan and you can start paying the new amount every month.

After 6 months, you want to shift to a 2-year lease. Simple. You must pay rent for 2-year lease from next month. However, it is a bad deal since you have a high rent for the first 6 months. If you had started with a 2-year lease, you would have saved some money, but you do not always know upfront.

What if you take a 2-year and then want to shift to 1-year lease?

Now, this is a bit confusing. Copying text from FAQs:

Please note: If you switch from a longer subscription plan to a shorter one, a processing fee of 2% of the original annualized monthly subscription fees shall be charged and the monthly rental will be charged as per the new plan.

I am not sure if I am reading this right. Let us consider an example.

I want to rent a bike for 1 year. I will opt for a 2-year lease, where I pay Rs 1,000 less every month. In the 11th month, I convert to 1-year lease by paying only Rs 1019 (Rs 4249X 12*2%). This will save me a lot of money (10X 1,000 – 1019). I doubt Bounce will be comfortable with this.

I think what they mean is that, if you shift from the longer subscription to the shorter subscription, you will have to pay the monthly difference for the current subscription, in addition to the processing fee.

What if you take a 1-year lease (or 2-year lease) and want to cancel in between?

FAQs are silent on this. Will there be a penalty? Will the security deposit be forfeited? You must find out before signing up.

 Additional Reading

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