To cope with this significant investment, rental with option to purchase (LOA) is highly acclaimed. This formula consists of renting your car for a period previously fixed in the rental contract, by paying monthly repayments.
At the end of the contract, the consumer has the opportunity to become the owner of his car, which is however automatically the case if he favors car credit. Therefore, which financing to choose between car credit and LOA? What are the advantages and disadvantages of these two alternatives?
Here are the arguments that will shed some light on how to make the wisest choice according to your expectations and your budget.
What is lease with option to buy?
Rental with option to buy, or leasing, consists of renting a car (usually new but not necessarily) for the monthly payment of rent. The subscriber of the LOA has the exclusive use without being the owner.
When the contract ends (after a period fluctuating between 24 and 72 months), the motorist can buy his car at the price previously established at the time of signing the rental contract. This price is the residual value of the vehicle, that is to say its initial value from which are subtracted the rents already paid and the security deposit.
The subscriber of an LOA has the possibility, when his repayment capacities are sufficient, to operate the purchase of the new car before the expiry of the contract.
Similarly, the motorist has full latitude to change car provided that the vehicle in question is in the range offered by the manufacturer or the lender. What does the rent of an LOA include?
These rents include costs related to various additional services, such as:
- Car maintenance
- The repair
- Or possibly car insurance.
What are the advantages of the LOA?
Leasing with option to buy allows the subscriber to know exactly how much his car costs him each month.
He can also estimate his performance over time. This formula brings a certain flexibility to the borrower since the latter has the opportunity during the contract to modulate the amount of the rent according to the mileage traveled.
Indeed, the LOA implies respecting a mileage package, which is generally between 40,000 and 75,000 euros.
The LOA does not necessarily require a personal contribution. This formula therefore appeals to consumers who have limited means or little savings. The latter can thus find themselves behind the wheel of a recent and efficient model without having to draw on their woolen stockings.
Moreover, the rental with option to buy allows them to access cars that they could not claim through a car loan.
Indeed, the LOA authorizes lower monthly repayments which leaves more room for maneuver in relation to the repayment capacity of each. And this can be used to drive vehicles belonging to a range that would have been inaccessible because of the repayment deadlines generated.
Good to know : you can very well chain one LOA after another at the end of your contract, just to continuously benefit from a state-of-the-art vehicle.
What is a car loan?
The car loan is an assigned consumer loan, that is to say that the funds paid by the financial institution must be used for the purchase of a new car or the purchase of a car from opportunity.
The motorist becomes the exclusive owner of the vehicle, his identity appearing immediately on the registration certificate. This property allows him to sell his vehicle whenever he wishes, including if there are still installments to be paid from the car contract taken out.
To compare the offers, the auto credit simulation is facilitated by the fact that it suffices to observe the APR. The annual percentage rate of charge includes all costs relating to the financial transaction, which simplifies the comparison of car loan offers made by different financial institutions.
It is notable to note that the monthly repayments of a car loan are higher than the monthly rents of an LOA. On the other hand, the total cost of the car loan remains lower than that of the rental when the purchase option is exercised.
According to the regulations in force, the lender does not have the right to claim compensation from the subscriber unless the reimbursement is greater than 10,000 euros over a period of 12 months. This potential penalty can amount to up to 1% of the capital remaining to be repaid.
If the contract ends in less than a year, the amount of this penalty is capped at 0.5% of the remaining amount.
What are the advantages of auto credit?
The car loan allows the buyer to become the owner of his property, therefore to have complete freedom of management. Thus, no mileage package comes to constrain him in his travels.
This is one of the disadvantages of leasing when you know that the cost of a kilometer traveled beyond the mileage package fluctuates between 4 and 5 euro cents.
The subscriber of a car loan also does not have to anticipate additional costs in the event of dents or scratches on the car, synonymous with penalties under an LOA which stipulates that the car must be returned in a factory standard.
The motorist who favors a bank loan for the purchase of his new car finally has the opportunity to select the insurance deductible he wishes. This insurance deductible must indeed coincide with his needs. By playing on the competition, the subscriber can obtain real savings.
In particular, he can go through a broker specializing in consumer credit in order to obtain the best current offers on the market, especially since the brokerage fees are in principle offered.
Conclusion
There is no definitive answer to this question as it depends on your specific situation. Some people may prefer to rent with the option to purchase, while others may prefer to take out a car loan. Ultimately, it is up to you to decide what is best for you.