Have you noticed that the price of new cars hardly shows up anymore? It is indeed replaced by the price of monthly payments, necessarily less frightening. Every year, the share of consumers who buy their car with cash is decreasing. A change in behavior that puts use before possession as such. And it is leasing that continues to grab market share, both from individuals and from businesses.
Source: Frandroid
Nowadays, nearly one out of two purchases is made with a leasing : long-term rental or rental with purchase option type financing increased from 11% in 2012 to 47.2% in 2021 (C-Ways figures).
It must be said that these systems have many advantages for consumers, such as controlling their budget, driving regularly in a new car or not having to worry about the sale. But beware of offers that are too tempting, the leasing can also be very expensive, and sometimes more expensive than a “classic” credit!
The Peugeot e-208
To see more clearly and decipher the most attractive offers, here are the differences, advantages and disadvantages of these financings.
LLD and LOA definitions
Before we get to the heart of the matter, here are some definitions to know:
- Leasing : English word designating “location”. the leasing is a financing that makes the link between the consumer, a financing organization and a car manufacturer. As opposed to the cash purchase or “classic” credit, it is not the consumer who owns the vehicle but the financing organization;
- LLD : acronym for “Long Term Rental”, LLD is a financing formula which consists, against the payment of monthly installments, in benefiting from a vehicle for a fixed period. This does not belong to you, and must be returned at the end of the contract. Often to take a new one;
- LOA : acronym for “Rental with Purchase Option”, the LOA is a financing formula close to the LLD which consists, against the payment of monthly installments, in benefiting from a vehicle over a fixed period. With the difference that it is possible to buy the vehicle at the end of the contract.
Rental with Option to Purchase (LOA) in detail
Of the two formulas, it is Rental with Option to Purchase which is often preferred by individuals compared to Long-Term Rental. It is the one that offers the greatest flexibility, and that comes closest to a more traditional consumer credit, with the possibility or not, at the end of the contract, of buying back the vehicle.
Knowing that the resale price (or residual price) is fixed at the start of the contract, the consumer can, according to the market conjecture, win by buying the car at a lower price compared to the market. It can also be the opposite.
Advantages of the LOA:
- Flexibility of the formula;
- Possibility of acquiring the vehicle at the end of the contract;
- Control of the budget with a purchase price fixed at the signing which is potentially lower than that of the market.
Disadvantages of LOA:
- Bet on the residual value of the car;
- Important contribution;
- Maintenance and insurance not taken into account in the contract;
- Restoration costs.
Long Term Rental (LLD) in detail
Long-term rental, less chosen by consumers, is on the other hand preferred by the credit company, whether builders or others. It is indeed the LLD which is the most profitable for them: already because they offer many services which generate significant margins, from maintenance to repairs, via insurance. And because the electric or thermal car is recovered at the end of the contract to be sold second-hand.
Advantages of LLD:
- With LLD, maintenance is very often included;
- Possibility to drive in a new vehicle regularly;
- Duration of financing from 24 to 60 months (between 2 and 5 years);
- There is no need to worry about resale;
- Registration certificate which is at the expense of the financial institution.
Disadvantages of LLD:
- First rent often increased;
- Return at the end of the contract so the vehicle never belongs to you;
- High monthly payments;
- Many services offered (maintenance, repairs, insurance, etc.) billed at high prices;
- Expensive restoration costs;
- Excess mileage comes at a high price.
LLD and LOA also on the occasion
Recently, more and more professionals are now also offering LLD and LOA financing formulas on not new, but used vehicles. In particular, there are vehicles coming out of a first LOA or LLD, rehabilitated, checked and which leave for a ride. The obvious advantage of second-hand is that the formulas there are necessarily cheaper.
The Renault Zoé // Source: Jean-Brice Lemal for Renault France
In addition, used cars are often already in stock, and are therefore available more quickly. Which, in times of semiconductor crisis, is a real argument.
Traps to avoid
Be careful though: the LLD and LOA formulas can seem attractive and make the consumer believe in savings because the financing is spread over time. Or make him dangle that he is covered for all sorts of problems (mechanical, breakdown, bodywork, etc.). These formulas are above all much more profitable for financing organizations, whether they are the manufacturers themselves, or third-party services offered by banks, service providers, etc.
So there are a number of pitfalls to avoid.
As mentioned in the disadvantages, great care must be taken with the contracts chosen and their terms. Especially since, depending on the use of each, one or the other formula, LLD or LOA, may be more suitable.
First, beware of false advertising : you have to keep in mind that if the formulas are often attractive, and the rents seem accessible, the model presented in the photo is often much more expensive, the rent presented being relative to an entry-level. Generally, the featured photo lures you with the high-end model. Don’t be fooled, and read the small lines at the bottom of the page.
Volvo C40 Recharge – Paris National Testing – December 2021
do not forget to compare offers, between LLD and LOA of course, but also with the cost of a classic loan. And you will see that the latter is often the cheapest.
Before you embark on the leasing, estimate your needsin particular the mileage you travel per year: by estimating it as closely as possible to your use, the offers will be more closely aligned with your needs and you will also be able to save money by not paying for an annual mileage that you will never reach.
The mileage can be the biggest pitfall of the formulas of leasingabove all if you exceed it. Indeed, the excess kilometers are charged at full price, which can range from 20 to 40 cents per kilometer. It can go up very quickly.
Similarly, be careful not to subscribe to additional contracts which would be of no use to you: the rental company can tempt you by offering you services which may already be included in your insurance, such as breakdown assistance. So be careful not to make a duplicate and to pay for two similar services.
With the advent of the electric car, the second-hand market is changing and is seeing its ranks fill with more and more electrified models. But is it really worth turning to an electric vehicle…
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