WATCH: This startup by IIT Mumbai alumni reveals why leasing is the future of car ownership

Mumbai-based Oto Capital is showing Indians that leasing cars is cheaper than owning them. In a video interview with YourStory Business Editor Vishal Krishna, Co-founder Sumit Chazzed reveals why the car-leasing sector is poised to be the next big thing in the startup ecosystem.

Could falling car sales put the leasing market in the fast lane? A note by Target Investing in January said that the dim outlook for India’s automobile sector was likely to continue well into 2019 as “unsold vehicles swelled, while new car registrations saw a decline in the October-December (2018) quarter”.

And Mumbai-based Oto Capital is looking to translate this drop in car sales into growth for the car-leasing sector, something India hasn’t really warmed up to till now.

Oto enables vehicle ownership in a new way with flexible usage terms. The user pays for a car with a low, all-in, month-to-month payment, only for the number of years they use the car.

In a video interview with YourStory, Sumit Chazzed, Co-founder of Oto Capital, reveals why car leasing makes more sense in today’s world, how the startup is faring, and their plans for the future.

Also read: OTO Capital raises Rs 5 crore; will focus on expanding car loan base

Founded in October 2018, the K Ganesh-funded startup has raised Rs 5 crore from a clutch of angel investors and is aiming to increase its network of car leasing dealerships from 25 to 150 this year. It has currently disbursed loans worth Rs 7 crore and is gearing up to disburse $500,000 or Rs 3.5 crore a month.

“The business has grown well. We have been convincing dealers that they can sell more cars,” says Sumit, who co-founded Oto Capital with Harsh Saruparia, 29, his friend from IIT-Mumbai.

The company now has a presence in Delhi, Chennai, Mumbai, Pune, and Bengaluru. It has also tied up with 15 corporate clients who help their employees lease cars. Although car companies like Toyota and VW have always worked with corporates to lease cars they have never ventured into the consumer world because there are no tax benefits attached in the retail market while purchasing a car.

However, Oto Capital works with two financial partners to make leasing available to the retail market.

On the right road

Sumit says, “The economics of leasing a car work out far better than owning it.”

How? Say you lease a car for Rs 10 lakh. You deposit Rs 1 lakh, which is refundable at the end of the lease tenure. You sign a lease term for five years and pay Rs 15,000 per month with insurance. After four years of paying the loan, the consumer can contact Oto Capital, return the car, and take back the deposit. How did leasing work better than buying? They got to drive a Rs 10 lakh car by paying Rs 6.60 lakh.

Oto Capital founders Harsh and Sumit met at IIT Mumbai

“We take back the car and sell it to the pre-owned market. The consumer gets the option of refinancing by going for a higher priced car or any type of car,” Sumit says.

Oto Capital makes money on the interest amount and also on insurance referrals. It also rewards customers with good driving habits, which it tracks with its in-vehicle IoT device. The company makes money on corporate referrals if the corporate buys more cars. The more the corporate buys from a dealer, the dealer gives referral money to Oto Capital.

The startup has also created a dealership app, which helps a salesman close the deal with the customer faster by explaining the concept of leasing. It plans to soon also lease bikes.

The car leasing market in India is currently worth Rs 1,500 crore and is set to grow at 15-20 percent CAGR over the next 10 years. Sumit and Harsh are now keen to raise money and are on the lookout for $5 million to expand their business across dealerships in India.

Also watch: Zoomcar CEO reveals how the car rental platform has carved a niche despite the challenges and competition