Auto leasing is a solution more and more adopted by people who want to finance a vehicle without becoming the owner. This practice has some advantages but is not without drawbacks. Let's discover the strengths and weaknesses of auto leasing and see if it is better to use it rather than buying a car.
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Principle of car leasing
This financing operation, also called LOA ( Rental with Purchase Option ), consists of having a new vehicle through a rental contract with a leasing company, subscribed for a defined period, generally included between 2 and 5 years.
A mileage cap is frequently set. Most contracts provide for a maximum authorized mileage of 10,000 to 15,000 km/year. In addition, a personal contribution that represents the security deposit is paid at the time of subscription. This amount represents, in most cases, between 10 and 15% of the price of the vehicle.
The beneficiary of the LOA contract undertakes to pay rent each month for the entire agreed period and according to the stipulated conditions. In the absence of payment, the lessor may terminate the contract. He has the right to request compensation, or even the return of the vehicle, without being required to reimburse his customer for the monthly payments already paid.
At the end of the Rental contract with Purchase Option, the subscriber has two possibilities:
Or buy the vehicle: in this case, he becomes the owner. He pays the amount of the purchase option initially defined by deducting the security deposit paid at the signing of the contract.
Or return the vehicle to the organization that granted the leasing. The leasing company returns the security deposit to the subscriber. However, the lessor can deduct costs if the vehicle is in poor condition or if the kilometer overrun is too great.
How does Rental with Purchase Option (LOA) work?
Car leasing is a rental that works for the long term. The person interested in a vehicle and who wishes to finance it in this form contacts a garage, a dealer, or directly the desired model's manufacturer. A financial organization buys the vehicle for which it has entered into a partnership with car sales professionals. A contract is then established between this organization and the subscriber so that the latter reimburses the determined amount in the form of monthly rent fixed in advance. This depends on the price of the car, the authorized mileage, and the security deposit paid.
To subscribe to a leasing contract, it is necessary to sign a commercial offer presenting the general conditions and accompanied by the request for information. The subscriber must attach to the rental contract:
A copy of valid National Identity Card (CNI) or passport,
A copy of his last three payslips or the last tax notice if he is retired or self-employed,
Address proof dated less than 3 months (water, gas, electricity or telephone bill, etc.),
A check for the amount corresponding to the security deposit will be cashed on delivery of the vehicle.
The person has a withdrawal period of 14 calendar days from the signing of the LOA contract.
Car leasing: its advantages
This operation is interesting for drivers who wish to change vehicles regularly to benefit from a new car equipped with the latest technologies. But this is not the only reason for this choice. The driver can have a high-end vehicle without having to pay too much money, as in the case of an acquisition. In addition, the lessee has the option of buying back the vehicle as soon as the contract expires.
One of the big advantages of car leasing is also being able to pay lower rents than would be the monthly payments provided in the context of a classic car loan. Among the other advantages of car leasing, we can also note the following points:
The person does not have to worry about his vehicle's sale at the end of the contract.
The interested party can opt for an all-inclusive formula that includes in his rent and the rental of the vehicle, insurance, maintenance, and various services.
Financing is adapted to each budget so that the client is not too indebted.
No application fees imposed or credit insurance often recommended (but not mandatory) as part of a car loan.
The registration certificate is free for the rental duration, knowing that in the event of a purchase, the vehicle's purchaser must obviously have a new registration card issued in his name and at his expense.
Car leasing: its drawbacks
The LOA has certain negative points that it is good to know before opting for this type of operation. Among them we can deplore:
The depreciation of the car, ie (net price - residual value) / number of months determined in the contract. The residual value of the vehicle varies depending on the price, the age of the vehicle and the mileage limit.
The interest, included in the rent: their rate is usually between 6 and 8% of the vehicle's value, much higher than those applied in the context of a traditional car loan.
The maximum mileage authorized until the end of the contract: a device that is not always interesting for heavy riders. Indeed, this sometimes limits trips, especially for professionals who regularly use the rented vehicle as part of their activity. This concerns more particularly salespeople, doctors, nurses, taxi drivers, VTC drivers… Note that these persons have the possibility of opting for a higher kilometer cap, but which weighs heavily on the cost of the rent.
The maintenance costs are the responsibility of the tenant if he has not chosen an all-inclusive package (which is, of course, more expensive): although he does not own the vehicle, he must pay for the visits. According to the manufacturer's recommendations, periodicals in the same way as if the car belonged to him.
The repair costs are the responsibility of the subscriber in the event of the return of the vehicle. The lessee has every interest in returning a vehicle in almost new condition.
The LOA operation cost can be high, even if the rents are cheaper than monthly payments for a car loan. The amount ultimately disbursed is often greater when the contract holder chooses the Purchase Option at the end of the contract. The cost can be an additional 10 to 30%, depending on the price of the vehicle and the length of the rental.
In the event of the car's theft or destruction, the tenant must continue to pay his rent to the lessor. Insurance covers this type of risk but at an additional cost.
Car leasing remains a solution that is on the rise for motorists who do not attach any importance to being the owner of their car. However, you should know that the LOA is less advantageous than the purchase on credit because the latter solution allows the vehicle to be fully owned from the signing of the loan contract, with a lower interest rate. The person can then decide to resell it as soon as he wishes or to keep it for many years.
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