Yes I have driven wagon R with 5 ppl and it hardly has any effect on pick and ac. I also fold the rear seat when my nieces and nephews visit and they want to take a ride in Dadi jan's car, and go for an ice cream cone :). But in such situations, there is hardly any space for luggage and folding the rear seat is only meant for fun.
With wagon R, you will definitely have an upgrade over cultus with respect to pick, ac, comfort and fuel saving. However, in terms of luggage carrying capability, it would probably be the same.
If u think you can manage with a hatchback, then wagon R is an excellent choice. But if you can stretch your budget a bit, city auto/manual is more comfortable and has more utility.
This is just a humble mashwara. Best is to do an istikhara. Insha Allah you wont be confused any further.
Good luck.
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