Car loan or leasing: what to choose for your new vehicle?
The delivery of passenger cars in 2016 reached just over 2 million units in France, according to the committee of French automakers. This record is largely due to the boom in long-term rentals.
Formerly reserved mainly for companies and a few rare individuals, the share of car leasing is increasing considerably in France, reaching a market share of 36% today. It is available in two options: rental with option to purchase (LOA) or long-term rental (LLD).
It is therefore to fit into this movement and retain their traditional clientele that all manufacturers now offer their cars for long-term rental, whether or not including maintenance costs.
What attitude to adopt in this environment?
If, like a very large majority of French people (86%), you still want to own your own vehicle and not rent it for each use, you will now have to choose between the acquisition (via credit or not) or the LOA ( Rental with Purchase Option) by obviously asking you which is the best financial choice. LLD (Long Term Rental) can also be considered, but this option is generally only relevant for professional use.
To help you make the best choice, you should first remember what LOA is.
What is LOA?
The LOA or Rental with Purchase Option corresponds to the rental of a vehicle over a period of two to seven years, with the possibility of purchasing the vehicle at a price agreed in advance at the end of the contract.
To start this rental, a security deposit is generally requested, sometimes replaced or supplemented by a first increased rent. This allows the lessor to benefit from a personal contribution (a bit like a loan).
At the end of the lease, the security deposit is returned or can serve as a guarantee for the rental of another vehicle.
What are the advantages of LOA?
The advantage of this system is that you always have a recent car (unless you acquire it in the long term) and you do not have to use your savings to buy your car. The expense is thus smoothed and you know the fixed amount that will be deducted every month. Your budget is under control.
At the end of the rental, you have three options:
- You pay the purchase option and keep the vehicle
- You find a buyer and, in case of capital gain, you can use it for a future contribution
- You return your car and leave on a new LOA, if you wish
If you choose the latter option, you will need to be very careful. The contract requires the return of the vehicle in a perfect state of conservation and the car must be returned in accordance with very strict wear standards (number and length of scratches on the body and rims, tasks in the passenger compartment, etc.). If you do not do the repairs yourself, you will be billed for them. These vehicle repair costs can prove to be very high and take away a good part of your deposit.
What are the disadvantages of LOA?
Generally expensive insurance
Car insurance is generally not included in the monthly payment. You will have to insure yourself, and the rental company will strongly encourage you to choose an all-risk contract, including a guarantee against theft or fire with reimbursement as new. Which is one of the most expensive insurances.
Problematic theft or destruction
In the event of theft or destruction of the vehicle, you must continue to pay your monthly payments until maturity and must also pay the amount of the purchase option at maturity.
Insurance compensation will obviously be deducted from all these amounts, but may not cover everything and cover, for example, only the value of the call option.
A maximum annual mileage defined in advance
When signing an LOA contract, you must define the maximum mileage per year that you will achieve according to your needs. This maximum annual mileage generally varies between 12,000 and 15,000 kilometers for a petrol car, and between 20,000 and 25,000 for a diesel car. If you exceed this mileage, you will have to pay a supplement of around 5 to 10 euro cents per kilometer.
An imposed maintenance contract
The vehicle maintenance contract may or may not be included in the maintenance contract, but in almost all cases, it will be necessary to use the find network. If the dealer is far from home, or if his appointment book prevents him from intervening quickly on the vehicle, this can be an inconvenience. In addition, you will not be able to take advantage of the prices charged by independent repairers, or even by specialists in rapid repair in terms of maintenance.
Should we therefore favor car credit?
Now that you know all the specifics of LOA, you understand that the stake is not only financial, but that it is also a choice of use and renewal of your car.
Our advice is therefore simply, first, to choose a vehicle (make and model). Once you have validated your choice and know the amount of the acquisition, make a purchase simulation on credit via our auto finance simulator FinanzTip. You will therefore know the rent and the cost of the credit according to the duration.