How does LOA work and is it really interesting?

Leasing with option to buy is a consumer credit. A bank or a credit organization becomes the owner of the vehicle, and in return for a monthly rent, you make use of the latter. In general, an LOA lasts between 2 and 5 years. Once the contract is over, there are several possibilities: either you buy the vehicle back, or you return the vehicle to the owner.

When this financing was set up, it was reserved for new cars and companies, for their vehicle fleets. Today, it is extended to individuals and can even be set up for used cars.

What to prefer: LOA or car loan?

Whatever your choice, both financings have advantages and disadvantages. Let’s take a tour of these in order to have all the keys in hand.

The advantages and disadvantages of the LOA

The LOA allows you to have in your hands a recent vehicle, whether new or used. You can also change them regularly. In general, you know the cost of your vehicle in advance, as well as that of its maintenance. You benefit from the commercial guarantee throughout the rental. Finally, the rent of the LOA is often less expensive than a monthly car loan payment.

On the other hand, you will have fewer offers available on used vehicles. Maintenance must absolutely be carried out in the manufacturer’s network. The security deposit can be high and the overall cost of the operation is often higher than that of a car loan.

The pros and cons of auto credit

With auto credit, you will find more offers available for both new and used vehicles. As a borrower, you immediately become the owner of the car and can resell it at any time.

As we have seen, the monthly payment is higher than an LOA rent. The commercial guarantee is often shorter than the duration of the credit and the maintenance of the vehicle remains to be expected.

How to terminate an LOA during the contract?

To date, the LOA represents almost a third of new vehicle purchases. To end the lease with option to purchase, you have several solutions available to you:

• The purchase of the car in advance.
  • If the rental contract with option to buy allows it, you can contact the financing organization and take stock of the redemption of the current refund. When you have paid this sum, you become the owner of the vehicle concerned and have the choice of reselling it or not.
• Return of the vehicle.
  • Again, this is where the contract allows. You can in fact settle the whole of the reimbursement remaining due, and this without exercising the purchase option. This releases you from your obligations and you can then return the vehicle to the rental company.
• A transfer of the lease contract.
  • As its name suggests, the method consists of transmitting the contract to another tenant. This operation allows you to disengage from your obligations in favor of the new lessor who, of course, will have to give his prior agreement, in the same way as the financing organization.

The pitfalls to avoid in the context of an LOA

If renting with option to buy has many advantages, do not be fooled, some pitfalls remain. Watch out for these to avoid them.

The estimate of the cost of the LOA

If the monthly payments are lower than those of a classic car loan or a consumer loan, to become the owner of the vehicle, the lessee will have to exercise the purchase option. In other words, he will have to pay an amount corresponding to the residual value of the vehicle. Similarly, your first rent is increased when you go through the rental with option to purchase. By going through a car loan, you will have neither exercise of option nor deposit. The monthly installments offered for a credit include these inherent expenses and you do not have to pay them “once”. This can save you from surprises.

Think about the mileage package

When signing the rental contract, you set an annual mileage with the lessor, according to your needs. If you have exceeded this mileage when returning the vehicle, the lessor may claim a penalty, sometimes even applied to the additional kilometer. In addition, take into account that it is rare to be able to negotiate an increase in mileage during the contract, the latter being included in the calculation of the monthly payments remaining due.

Maintaining the vehicle in good condition

Even minor damage can cost you dearly. Whether it’s a scratch, a broken headlight, a dent in the door, etc. the costs of repairs can climb, and the tenant must pay them!

Pay particular attention to the cost of options

Very often, what we are looking for in this type of contract is peace of mind. Be careful though, not at any price. LOA contracts can be customized and you can choose extensions for servicing, support, maintenance, etc.

For example, every motorist must have insurance, this is not an option. In fact, you can choose your insurer and your guarantees by opting for the most suitable coverage. Do not hesitate to make several quotes and avoid falling into the trap of duplicate guarantees!

Make a contribution at the start of the LOA

You can indeed provide a personal contribution when signing your LOA contract. However, the latter is not mandatory. The advantage is that if there is one, the more important it is, the lower the amount of the monthly payments will be. However, it must be taken into account that the contribution is not returned at the end of the contract, and since it is deducted from the overall financing, it is not taken into account in the residual value of the vehicle.

In fact, if you exercise the purchase option, you will have to pay the remaining amount of the refund, and if you return it, you lose your contribution and find yourself without a vehicle.

As you will have understood, do not hesitate to go around the financing formulas. Depending on your needs, a car loan, a consumer loan can be advantageous alternatives! If you have any doubts about the most suitable financing for your situation, do not hesitate to take stock free of charge with an expert advisor. The latter will look with you at the different possibilities to which you can claim in order to find the one that suits you best. The whole thing, depending on your profile, is to avoid unpleasant surprises and possible additional costs.