Should You Buy or Rent a Car?

We have looked at “Buy vs Rent” for a house. In this post, let’s extend this argument to a car.

Wait, what, a car? Yes, instead of buying a car, you can rent a car.

You buy a new car on loan. You pay EMIs for 3-5 years and for insurance and maintenance every year. Car loan EMIs, insurance, and maintenance are almost fixed costs. There will be small variation over the years, but you can be reasonably sure about the outgo. Once the loan is over, you own the car.

Alternatively, subscribe to a monthly rental program. Drive home a brand new car. Pay monthly rent as long as you use the car. Then, return the car. Monthly rent takes care of insurance and maintenance.

In both cases, you have a monthly outgo, and you bear the fuel cost.

Paying the car loan EMI vs Monthly rent? In a depreciating asset such as a car, which option is a better choice?

Maruti Suzuki Subscribe

Maruti Suzuki offers cars on subscription basis under Maruti Suzuki Subscribe program. The scheme is offered through its subscription partners such as ALD Automotive, Myles, and Orix. Let’s find out more about the Maruti Suzuki subscribe scheme and see if leasing/renting a car is better than buying the car outright.

Black Plate and White Plate Registration

1. White Plate registration: The vehicle is registered in your name. Hypothecated to the subscription partner.
2. Black Plate registration: The vehicle is registered in the name of your Subscription partner.

The rental for Black Plate Registration is higher.

Maruti Suzuki Subscribe: Important Features

• You get a Brand NEW car. You do not get a USED car.
• Subscription tenure
  • White Plate Registration: 12, 24,36, and 48 months
  • Black Plate Registration: 12,18,24,30,36,42, and 48 months
• No down payment
• Monthly rent inclusive of insurance and maintenance
• Option to extend tenure: At the end of your subscription period, you have an option to extend tenure. However, as I understand, you can’t extend beyond the maximum subscription period.
• Buyback option: You get an option to buy the car at the end of your subscription period. There is a bit of subjectivity in the purchase price. As per the product brochure, the Subscription partner will make the sale offer depending on the Subscription tenure (essentially age of the car), usage, and market value assessment.

Maruti Suzuki Subscribe: What Are the Restrictions?

• Lock-in period
  • White Plate Registration: 50% of the original tenure
  • Black Plate Registration: 12 months
• 1 month notice for foreclosure and extension
• Distance permitted
  • Black Plate Registration: Rs 15,000 km per year. Rs 3 to 5 per km on extra distance + taxes
  • White Plate Registration: Multiple options: 10,000, 15,000, 20,000 and 25,000 kms per year. If you drive more, you pay Rs 5 per km + taxes.

Maruti Suzuki Subscribe: Who Is Eligible?

• Minimum age: 25 years
• Maximum Age: 65 years
• Valid KYC and CIBIL score of over 700

Documents Needed for Application

You will need the following documents for your application.

• Subscription Lease Application form
• PAN card and Latest address proof
• Income Proof for Salaried:
  • Last 6 months bank statement for salary account
  • Last 3 months Payslip
  • Last 2 years ITR acknowledgement with computation
• Income Proof for Self-Employed
  • GST certificate or Shop & Establishment certificate
  • Last 6 months current account statement
  • Last 2 years audited financials / ITR with computation
• CIBIL report/consent letter
• Driving license (for select subscription partners)

How Do You Apply?

I reproduce a chart from the product brochure. The chart explains the process well.

What Costs Does the Subscription Cover?

1. Zero Depreciation insurance with Engine Protect and Roadside Assistance. Very useful. Zero depreciation insurance is also quite expensive. Plus, zero depreciation cover also reduces the outgo from your pocket in case of claims.
2. Comprehensive maintenance coverage (scheduled & unscheduled services, complete maintenance work as per schedule by Maruti Suzuki, repairs, including parts and consumables), tyres & battery replacement) Not sure what they mean by unscheduled services. Need to understand the fine print.
3. Registration and RTO related expenses. This is a significant cost at the time of car purchase.

What Costs Does the Subscription NOT Cover?

• Fuel
• Fast tag and Toll charges
• Challans and penalties
• Pollution check (PUC renewals)
• Damages beyond regular wear and tear (regular wear and tear would be covered by Comprehensive Maintenance Coverage)

All these are rational exclusions.

How Much Does Maruti Suzuki Subscribe Cost?

The monthly cost will depend on multiple parameters.

• Black plate or white plate registration: Black plate is expensive, potentially due to higher registration costs and
• Annual Distance option chosen: The monthly cost increases with the annual distance option chosen. The more you drive, the more wear and tear the car will face.
• Subscription Tenure: Longer Tenure is cheaper.
• The car variant. More expensive cars will have higher monthly rental.

Here is what you will see on the subscription page. I had selected the Maruti Suzuki Swift Vxi MT-Petrol.

You can select the registration type, color, tenure, annual distance package, and the subscription partner.

Maruti Suzuki Subscribe (Maruti Suzuki Swift Vxi MT-Petrol)
Monthly Rental	White Plate	Black Plate	White Plate	Black Plate	White Plate	Black Plate	White Plate	Black Plate
Tenure/Distance	10,000 kms		15,000 kms		20,000 kms		25,000 kms
12 months	22,343	22,860	23,018	23,616	23,693	NA	24,238	NA
24 months	18,147	21,052	18,541	21,804	19,261	NA	19,914	NA
36 months	16,347	19,898	16,980	20,647	17,245	NA	17,847	NA
48 months	16,163	18,789	16,521	19,537	16,892	NA	17,416	NA
I have just picked up the best offer from various monthly rental offers by various subscription partners. For Bangalore. The best offers may be different across cities. NA: Not available

Buy or Rent the Car?

Let’s say you want to drive Maruti Suzuki Swift Vxi MT-Petrol for the next 4 years.

You have 2 options:

1. You can either buy the car outright or on loan OR
2. You can subscribe to the same car variant.

When you buy a car, you own the car. You can drive the car for a few years. Pay insurance and maintenance. After that, you can sell the car and get some money back.

When you rent a car, you can’t sell it since you don’t own it. You can drive for a few years. You don’t have to pay insurance and maintenance.

For 4 years, the monthly rent for White plate registration for 25,000 km per year is Rs 17,416. I assume this price is inclusive of GST.

Is this cheaper than buying the car outright? I checked the on-road price of this car in Bangalore on Carwale.com.

By the way, you might be able to get this car at a slightly lower cost. The insurance cost is quite high. This insurance cost includes a 3-year third party insurance and 1-year own damage premium. Not sure if the quote is for a Zero-depreciation policy.

I checked the quote for the same car from Acko. Zero-depreciation cover. IDV: Rs 6.24 lacs. Added Engine protect cover. Return to Invoice cover. Extra car protect cover. Personal Accident Cover. Total cost: Rs 17,300 + GST = Rs 20,415. And this also includes 3-year third party and 1-year own damage cover.

Coming back to the topic. Let’s say the bank allows you to purchase the car on 100% loan. You take a loan for 4 years at 10% p.a. EMI for a loan of Rs 8.23 lacs = Rs 20,873.

We have looked at the cost of insurance. Beyond the first year, let’s say you will pay 25,000 per annum for insurance and maintenance. Given the cost of insurance I showed above, even this annual cost is on the higher side.

So, Rs 20,873 per month in the first year.

And Rs 20,873 + 25,000/12 per month = Rs 22,956 per month in the next 3 years.

Under the rental plan, you paid Rs 17,416.

Thus, over the next 4 years, you will pay Rs 2.53 lacs extra if you buy the car outright.

However, you will own the car, which you can sell. Let’s say you can sell the car at 50% of the purchase price. You get about Rs 4 lacs on selling the car.

So, you pay Rs 2.53 lacs extra over the next 4 years and you own an asset worth Rs 4 lacs. I don’t want to go into XIRR calculations here. However, looking at the numbers, buying a car looks a better option than renting (or leasing) the car.

Beyond the 4th year, if you own the car, you can continue to use the car at no extra payments to the bank.

If you are renting/leasing, you need to subscribe to a new plan, which has a substantial cost. Or you have an option to buy back the car, but you can’t be sure of the buyback price.

Note: I have done this analysis just for Maruti Suzuki Swift Vxi MT. If you are keen on a different car, go to the Subscribe page and check out the rental for your preferred car. Thereafter, you can compare against buying the car on loan.

Merits in Renting or Maruti Suzuki Subscribe Plan

• No hassles. Pick up a car and subscribe.
• At the end of the subscription period, you can extend the subscription. OR Upgrade/downgrade to another car. OR buy back the car.
• Good option if you are shifting to a new city for just a few months or a couple of years. When you move to a different city, let go of the existing subscription and take a new subscription in the new city. And get a brand new car.
• Quite beneficial if you are shifting to a different state. If you own a car, you will have to transfer Vehicle registration to the new state and pay road tax. If you don’t do that, local cops can sometimes harass you. No such problems with the Subscription model.
• No down payment needed.
• If you are self-employed, you can even show subscription rental as an expense.

Demerits in Maruti Suzuki Subscribe Plan

• You will never know the full picture until you subscribe.
• Product brochures always present a rosy picture. There may be details in the fine print that might cause trouble later.
• There is a lock-in period. What if you want to end the subscription in between? What shall be the penalty amount?
• There is a cap on the maximum usage. The maximum is 25,000 kms per year. If you are a heavy user, you must pay for every extra kilometer driven. If you owned the car, you wouldn’t have to pay for extra usage.

What Should You Do?

If we consider the numbers above, buying seems like a better option than renting. However, these decisions are not just mathematical.

Your situation may warrant a different decision. Everyone is wired differently. Some may prefer buying while the others might prefer renting or leasing. For instance, if I needed a car for just a couple of years, I wouldn’t want to go through the hassles of buying and selling. Might just rent/lease the car.

If you have a heavy user, then buying is clearly a better option. You may breach the cap of annual distance quite easily and then pay through the nose for extra usage.

What do you prefer for your next car? Buy or Rent?