Ok, I lied. The truth is, not only did I get my car (Renault Kwid automatic) for free, I am also getting paid to keep the car. And if you are patient enough and read the whole article, you will find out how I even get my fuel for free 😛
Financial Planning and you
The idea of this article is not to gloat or to prove that you can get a car for free. It is to show you that there is a lot of sense in planning your purchases and finances. This is just one example of that. In this example, I used the option of leasing a car my employer provided and also the tax benefits given with that. Not everyone will want to be leasing a car or even want to be buying a car.
The take away for you after this article should be, that be it a car or any other purchase, small or big, planning and utilizing all possible options available to you will save you a lot of money.
New Car for free? There is one catch!
Of course there is a catch! So this is not for everybody. It applies to people working for corporate companies that have a Company Lease Vehicle scheme or those with their own businesses. What I am going to outline is my experience in getting a car and how I got back more than the value of the car, effectively making the car free for me.
What is Company Lease Vehicle scheme? How does it work?
Company Lease Vehicle (CLV) scheme is offered by most companies (some companies offer it only to their senior management). In this scheme, the employee (you) get to choose and buy a car. The car is purchased and registered under the the companies (your company) name. It is paid for by a auto financing company (car loan, or other pre-approved auto loan), the monthly payment (EMI) for this is taken from your salary.
For the time you have the vehicle under the loan, it will be in your company’s name. Once your EMI’s are done, then you can transfer it to your name.
The EMI you pay for the car is Tax free. There is a small perquisite you need to pay if you are using the cars for personal purposes. Additionally, as per your company policy, your company will be giving you a tax break on the money you spend on fuel and driver (only for official purposes), maintenance of the cars, insurance for the car etc.
How I got the car lease:
I fall under a grade which is allowed to take a car on lease. After going through the company policy on this, I applied for it. My company asked me to pick a car. I went to the Renault showroom and selected my Kwid. The invoice was generated in my company’s name and within 2 weeks paid for by the company (through the Auto loan partner). From the following month, I had to start paying the EMIs for the car.
Cons, just two of them:
Tax Perquisite levied on a free car:
The car will be for official purposes only. If you are using it for personal purposes (like I do), then you will need to pay a small amount (about 10% of the interest saved, this varies per company) as tax. This still works out to be good, refer to my table below, where I still make money.
Car under company’s name:
The car during the time of the lease will be in your company’s name. So, when you pay the lease off, and transfer it back to your name, you technically become the 2nd owner.
There is a work around. You can sell the car (like I plan to) before the lease ends, and instead of transferring the car to your self, transfer it directly to the new buyer. That way, the buyer will still get it as a second hand car, instead of a third hand car.
Importance of planning in Personal Finance
I could have done this in a number of different ways and I would not have got the benefits I am getting with this car. Here are a few:
- I could be like some colleagues who don’t spend time or effort in understanding the benefits. They feel the terms of CLV are too complex and hence dont go for leasing the vehicle. Losing out on the benefits
- Some other colleagues go for high end vehicles outside their range. Had I done that, the car will not be free like in my case. I calculated and chose the best car that is in my budget and after all discounting will cost me zero. Instead had I taken a Creta or a Ecosport, I would have ended up paying higher monthly payments and not the same benefits.
- After getting the car, I could drive and use it alone like a lot of others. Instead, I started pooling rides using Quickride. This paid for my petrol expenses and even gave me some extra money making it easier to afford the monthly payments for the vehicle.
- I pay for the fuel and car insurance using my credit card to get additional cashbacks. Then collect these receipts meticulously and apply for tax breaks on them.
Reading and understanding how corporate bases lease schemes work, doing cost/benefit analysis on the different cars available in the market, collecting receipts, picking up fellow riders while car pooling. These are things that require patience, take time and effort. But as you can see from the table below, in the long run it is all worth it.
How it worked out for me
|(a) On Road Price of my Car||RS.4,60,000|
|(b) Tax Savings for 4 years (factoring tax perquisite) (@20% tax slab)||Rs.1,36,160|
|(c) Tax savings on Transport, Fuel, Insurance and maintenance allowance for 4 years (@20% tax slab)||Rs.1,20,000|
|(d=a-b-c) Value of my car after above two deductions||Rs.2,38,840|
|(e) After 4 years, I can sell the car. Very conservative resale value of a 4 year old Renault Kwid Automatic car||Rs. 2,75,000|
|(f=e-d) After getting to use the car for 4 years, money I get back||Rs.71,160|
Not just the car, how to get the Fuel for free?
Is this all? Of course not. While driving to and fro from office I car pool. Meaning, I take riders who are going the same way as me and they pay me a small amount. This covers my fuel expenses. As such, I get the car for free and my fuel for free 🙂
Few frequently asked questions on CLV
Check if your company allows for employees to have company leased vehicles. If they do, then just reach out to the finance and payroll team. They will be able to guide you on how to apply for one and the formalities
The interest for cars you take under CLV schemes are usually on the higher end. About 12% to 15% while market rates for cars are around 8% to 10%. In fact, during festival seasons car companies give discounted interests too. But you cannot get that under CLV scheme
Nope, that is not allowed. Only new cars can be leased under the companies name for the employee.