Benefits of leasing your car instead of buying

LONG-TERM car rentals can offer drivers attractive prices, regularly updated vehicles and services thrown in – and should not be confused with the higher prices of short-term ‘holiday’ rentals.
However, a standard rental contract is not the only possibility: for potential buyers wanting the best of both worlds, there is a form of leasing called location avec option d’achat.
Known as LOA in France, this arrangement for leasing with a purchase option is now more popular than buying a car with a traditional loan.
This allows you to buy the car at a reduced price at the end of the rental period if you wish.
Such deals, whether for long-term rental or LOA, are typically for around two to five years. Here, we look at the options in greater detail:

Location de longue durée (LLD)
This is a pure rental arrangement, and at the end of the contract term you can either stop, or exchange the car for a new model, with your leasing period and monthly payments recalculated.
A deposit may be payable (which will be returned at the end of the rental period), but there is not an additional high first payment, as there may be in the LOA option (see below).
The monthly payments are often less than for a LOA but apart from this the big advantage is that services of the car are usually included as well as breakdown assistance, repairs and a replacement car if required. Insurance is also often part of the package.
The amount of the monthly payments depends on the value of the car, length of contract, mileage allowed for and what services it includes.

Location avec option d’achat (LOA)
A LOA arrangement involves payments each month or quarter as well as, usually, an initial deposit of up to 15% of the price of the car. As with the LLD, rent payments will vary depending on how long a period you have committed to, the model of car and any mileage limits in place.
There is a 14-day cooling-off period, in which you can cancel if you change your mind.
Sometimes the first payment is much higher than the rest (instead of, or on top of, the deposit) – you may see, for example, an advert offering a first monthly payment of €2,000 and then 48 payments of €150.
In this case, however, the rental payments go part way towards paying off the car should you wish to buy it at the end of the rental period. For example, with a typical LOA of three years the monthly payments may finance around 60% of the vehicle cost, or 70% for a four-year one.

At the end of the rental period, if the driver wishes to buy the car, then the deposit amount is deducted from its residual value, which should be specified in the contract.
Alternatively it is handed back, minus any deduction for refurbishing the car for another customer to use – you should therefore take care to avoid bumps and scratches. Or if the driver wants to continue with another LOA, then the deposit can go towards the next car.

Some LOA contracts include an option d’achat avant terme (option to buy before the contract term is up), but usually you need to rent the car for at least a year.
Although a LOA typically ends up a little more costly than a classic car purchase loan, it has advantages, especially if you have a tight budget.
The initial deposit is usually less, also as your monthly payments are only going towards paying off part of the car’s price (the rest being its residual value at the end), they are reduced compared to loan payments against the whole value of the car.
If you do not want to buy the car at the end of the lease, you can exchange it again for a new model, with a new minimum period and with a readjustment of your monthly payments.
Unlike with a LLD, with a LOA, keeping the car serviced is typically the responsibility of the driver, though this depends on the contract.

Insurance
Insurance is more often included as part of the deal with a LLD as opposed to a LOA. If it is not, you need to budget for insurance – just as you would if you were buying the car with an ordinary bank loan. Sometimes the leasing company will require fully comprehensive insurance.

Mileage limits
These contracts include a monthly kilometre limit which should not be passed, otherwise you have to pay extra for the additional kilometres (typically, for example a petrol-driven car may have a limit of around 12-15,000km; limits for diesel cars may be more).

Who does leasing suit best?
One of the biggest advantages of leasing – unless you eventually take up the purchase option on a LOA – is that you can always drive a practically new car.
If you are happy to keep a car for at least six years, it may be more cost-effective to go for a traditional loan, but if you would prefer to renew it every few years a LOA is likely to be more cost-effective.
With LOA payments you would also typically be able to drive a more high-end car for similar monthly outgoings, compared to a traditional loan, especially if the deal includes a relatively low deposit and the initial monthly payment is not too large.
The LOA also offers you more flexibility, and you always have the possibility of going for the purchase option instead of continuing to rent.

Reader Ian Coward from the Aude was happy to lease his cars with LOA deals – until the drop in the pound put monthly costs up unexpectedly.
He first decided to lease six years ago to replace a 12-year-old Ford and his local Ford garage offered a LOA plan. The deal included an initial payment of €2,120 for a new Fiesta 1.6TDCi, with 25 monthly payments of €240 including services and Ford emergency assistance.

The car itself was worth around €16,700, but the garage had reduced it to €15,000 due to part-exchange.
At the end of the two years he was offered three choices: to walk away owning nothing, to buy the car for €7,070 or take out a new contract for a new car. “If you add up the costs together, it would have been the same price as the car, so there was no interest.” Instead he chose another Ford Fiesta with no down-payment and a monthly payment of €278.
He has now finished his third (30-month) contract and decided to buy for €7,325 due to uncertainties in currency exchange. “Our monthly payment of €210 was costing us £150 in January 2016 and over £185 in October 2016,” he said.

He added: “You’ve got the opportunity of a new car every two years, which a lot of people like the idea of, and your servicing is taken care of, so, apart from the monthly payment, you feel at ease.
“I would recommend leasing provided that the monthly payments can be paid out of French euro earnings.
“However if (as in our case) your income is from UK pensions which are subject to fluctuations in exchange rates then it can prove expensive if the rates go against you as they did for us.”