Leasing, also known as leasing with an option to buy or rental on loan, consists of a rental car for a period of 2 to 5 years, with the possibility of purchasing the vehicle at the end of the contract at a fixed price from the signing of the contract.
Leasing is widely practiced by companies to manage their fleet. However, more and more individuals in France are turning to this alternative rather than conventional auto credit. Be careful, however, leasing remains a consumer credit AND a car rental, so you should carefully research before committing.
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Car rental: a long-term car rental
In fact, the consumer orders the car they wish to rent from a dealer or directly from a car manufacturer. Through a partnership system, a financial organization will purchase the vehicle, then reimburse you through the monthly rent paid by the tenant. It is then with the financial institution that the lease with an option to buy will be signed.
What budget does a rental contract entail?
The amount of the monthly payments is determined by: the price of the new car, the number of kilometers allowed per year, and the initial financial contribution.
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When the contract is signed, the initial contribution is often used to finance the security deposit. This deposit is generally the amount of the purchase option and cannot exceed 15% of the value of the new vehicle.
The amount of the fee is not necessarily fixed; it can be decreasing or increasing and takes into account the depreciation of the vehicle. It is important to check with the lessor about the guarantees and services included in the lease:
- sometimes insurance is included, in which case it is recommended to check that it includes liability coverage for drivers, essential in case of accidents and damage caused to third parties
- the maintenance of the vehicle is most often the responsibility of the tenant
- breakdown assistance and towing, if necessary, for the repatriation of the vehicle
For example, for a rental contract on a Renault Captur DCI 90 Energy model with the following terms: — rental period 60 months — 15,000 kilometers allowed per year — initial contribution of €2000
… you should expect a monthly payment of around €220 with purchase option at €8200, for a total cost without insurance of €23,100.
However, in case of non-payment of the rent, the owner can terminate the contract or seek compensation.
And at the end of the LOA contract?
At the end of the rental, the person has two options:
- buy the car they have rented so far to own it
- return the vehicle and possibly sign a new lease on a new car
In the first case, pay the amount of the initial purchase option by deducting the security deposit already paid.
In the second case, the lessor returns the security deposit to the tenant. Please note that the lessor may withhold fees for excess mileage or if the vehicle is not returned in satisfactory condition.
Tag: how leasing works