Monday to Friday 9am - 12.30pm - 2pm - 7pm
What is a LOA (lease with option to buy)?
LOA (lease with purchase option): definition
La LOA (lease with option to buy) is a contract between two parties: the owner (the lessor) of a specific asset grants a second party (the lessor) the right to its exclusive possession and use for a specified period and under specified conditions, in exchange for specified periodic rentals or payments.
In the case of a vehicle, the LOA (lease with purchase option) refers to the leasing of a car for a fixed period of time at an agreed rental price. This type of contract is often used if you cannot pay cash for a vehicle.
- For private individuals, it allows them to drive a new vehicle without having to pay the full value of the vehicle in one go.
- Companies opt for this type of contract to relieve their cash flow. Leasing the vehicle smoothes out the initial investment.
The main difference with a traditional leasing contract is that at the end of the contract (generally 2, 3 or 4 years), the vehicle must be returned to the leasing company or purchased for the residual value.
The residual value of electric vehicles
To find out whether you should buy your electric vehicle at the end of a lease with a purchase option, you need to look at the vehicle's residual value.
The amount of the purchase option is stated in the leasing contract. This amount is generally calculated on the basis of the vehicle's residual value at the end of the contract. The residual value is therefore an estimate made by the lessor or dealer.
Lease with purchase option = Rent * month * current interest rate + residual value
Determining the residual value of a vehicle is not an easy task. Projections are largely based on how a given model has retained its value in the past, as well as the expected demand for the used vehicle. Few electric vehicles that are two or three years old have a history that allows valuers to estimate their resale price, which explains some of the high rents for electric car models.
As things stand, it is difficult to estimate the resale price of electric vehicles. There are several reasons for this difficulty in estimating the residual value of electric vehicles:
- a fairly poor track record the electric models are recent and there is no real market for second-hand vehicles
- the number ofaid available for the purchase of a new electric vehicle: electric vehicles are subsidised by the French government. These necessary subsidies make the prices of new vehicles often very attractive, leading consumers to favour new electric vehicles over second-hand ones.
- l'autonomy The first electric vehicles had relatively limited ranges. These models are therefore not competitive with new electric vehicles with greater range.
LOA (lease with purchase option) in figures
In France, the LOA (lease with option to buy) financed 3 out of 4 new cars in 2018, according to the annual activity report of theFrench Association of Financial Companies. La LOA also accounts for half of all used car financing.
The share of LOA in new car financing rose from 42% in 2013 to 75% in 2018. This represents an increase of +13.2% in 2018.
These changes are good news for the automotive sector in France, which can count on the LOA (hire purchase) to boost sales. This growth has been achieved at the expense of traditional credit, which has seen a decline in sales. sharp decline among French consumers.
Should you buy an electric car after a lease?
It's a question we're often asked. As in most cases, we can't make generalizations. The answer will depend on your personal circumstances.
You are coming to the end of your rental contract
If your LOA (lease with purchase option) comes to an end, you have two options: return the vehicle or exercise the purchase option.
Post an ad on free resale sites: Leboncoin for example. The value of a used car is largely based on supply and demand, in relation to its condition and the number of kilometres on the clock.
Post a detailed ad with all the vehicle's options, several photos and the current mileage. In the case of electric cars, it is advisable to communicate the state of the battery.
Good to know: most manufacturers offer a warranty of several years on electric car batteries. Don't hesitate to mention this in your ad to reassure potential buyers.
Depending on the posted price and the number of requests you receive, you will know whether you should buy the vehicle at the end of your term. LOA or not:
- If the possible resale price is higher than the purchase option => take the vehicle back and resell it at a profit.
- If the possible resale price is lower than the purchase option => return the vehicle to the dealer or leasing company.
- If the prices are similar => it will be up to you to decide whether you want to keep the vehicle or not. This will depend on how satisfied you are with the model.
Good to know: when you buy back your vehicle, some of the services included in the LOA (lease with purchase option) are no longer included. You will have to pay for vehicle maintenance, for example.
You do not wish to pay any penalties
A lease with purchase option (LOA) is subject to a limit on the number of kilometres you can drive each year. If you don't pay attention to your mileage quota, you will often have to pay very high penalties. In this case, it is sometimes a good idea to buy the vehicle back at the price agreed at the outset.
Most contracts have mileage limits of 10,000 km per year in France, but it is possible to go further if you drive more.
Good to know: if you drive a lot, you should opt for a long-term lease (LLD) rather than a lease with purchase option (LOA).
Buying an electric car under a LOA (lease with purchase option): your advantages
La LOA (lease to own) offers advantages to both buyers and sellers.
The advantages of LOA (lease with purchase option) for the lessee
- You can drive a new car for as long as you wish.
- Monthly rental payments will generally be lower than for a car loan The tenant pays for use, not possession.
- The lessee doesn't have to worry about the future value of the vehicle, whereas the owner does. For a business lessor, there are tax advantages to consider.
- The length of the contract and the mileage are defined according to the lessee's needs.
- You don't have to spend a lot of money: the first rent increase is around 5 and 15 % of the selling price of the vehicle.
The advantages of LOA (lease with purchase option) for the lessor
- The lessor retains ownership of the vehicle and can - at the end of your contract - re-let it or resell it at a profit.
- The LOA (rental with purchase option) are shorter, it helps to build customer loyalty and to sign new contracts more often.
- A large, up-to-date stock of used vehicles, enabling us to sell to markets that are keen on second-hand vehicles.
As you can see, the LOA (leasing with an option to buy) is on the up and up, enabling more vehicles to be financed in France. If you choose this type of financing, it would be worth finding out about the pitfalls to avoid when taking out contracts.
Buying an electric car under a LOA (lease with option to buy): pitfalls to avoid
As you can see, the LOA (leasing with an option to buy) is on the up and up, enabling more vehicles to be financed in France. If you choose this type of financing, it would be worth finding out about the pitfalls to avoid when taking out contracts.
Good to know: you have 14 days from signing the contract to withdraw. You must then contact the lending institution.
The first rent increase
This amount represents the first payment to be made in addition to the first rent. This amount is generally high (between 5 and 15 % of the vehicle's sale price, or even more for certain contracts).
When you ask for quotes, you need to pay attention to this amount. You may see some very attractive offers for monthly payments, but with very high initial rents.
The calculation is quite simple. Let's take an example for a 36-month contract.
- Offer no. 1: Rent of €200/month with an increased 1st rent of €8,000
- Offer no. 2: Rent of €300/month with an additional 1st rent of €1,000
It's the marketing effect, but our brains are going to be more attracted by the first offer. But if we get out our calculator, here's what these figures give over 36 months.
- Offer no. 1: (€200 x 36) + €8,000 = €15,200
- Offer no. 2: (€300 x 36) + €1,000 = €11,800
You need to make this simple calculation every time, so as not to fall into the trap of offers that are too tempting and that will end up costing you more. Similarly, the very principle of car hire is that you don't have to pay too much in advance, which makes offers with higher initial rents relatively superfluous.
Mileage for the duration of the lease
This is the second very important point to consider. Long-term leasing offers are often subject to restrictions in terms of mileage. This mileage is fixed and cannot be exceeded without paying a bill at the end of the contract. The bill can be very high if the mileage is exceeded.
Let's take an example: you took out a 10,000 km/year inclusive contract for a 3-year term. At the end of the contract, you have driven 40,000 km instead of the 30,000 specified in your contract.
The amount of the invoice at the end of the contract will be the number of extra kilometres travelled multiplied by a price per kilometre. This amount is written on your contract when you sign it. Let's imagine that for each extra kilometre you are billed five centimes, for example.
In this case, the additional amount due will be : (40000-30000)*0.05= 500 €.
If you haven't budgeted for such an expense, you may be penalised when you return your vehicle.
Restoration costs
As the tenant, you are responsible for the upkeep of the property.. This is a very important point. When you hire a car, you don't own it. You must therefore return it in perfect condition.
If this is not the case, the owner (dealer or lessor) may demand very high reinstatement costs.
Dealers or leasers often call in professionals to go over every detail of the vehicle. If the vehicle does not comply with the hire company's specifications, the latter may impose repairs that are often overpriced and for which you will be charged.
To sum up, before taking out an LOA (lease with purchase option), you need to read all the terms and conditions of the contract carefully. You can negotiate certain terms and conditions, such as mileage or the personalisation of the vehicle.
Tip: you should visit a specialist before returning your vehicle so that he can go over it and make any necessary repairs. This will avoid any surprises when you return your vehicle.
Insurance for a leased car (lease with purchase option)
You are responsible for insuring the vehicle when you take out a hire-purchase contract, even if you do not own the vehicle. You have the option of insuring the vehicle with the insurer of your choice, but the hire company may require you to take out a contract with more extensive cover.
We advise you to take out comprehensive insurance for any policy taken out in LOA (lease with purchase option) for peace of mind.
Buying an electric car under a LOA (lease with purchase option): putting together your application
You've chosen your future car, compared the offers and found a contract that suits you. Now it's time to start putting the paperwork together.
The file you compile will be sent to the dealer's or lessor's financing organisation.
What documents do private individuals need to provide for a LOA?
- A copy of your last three payslips. If you are retired or self-employed, you will be asked for your last one or two tax notices.
- A copy of your identity document, either a National Identity Card or a valid passport.
- Proof of address less than 3 months old. This can be a gas, electricity or telephone bill (even a mobile phone bill), a rent receipt or a property deed.
- A bank details form (RIB).
What documents do entrepreneurs and the self-employed need to provide for a LOA?
- A copy of your last three payslips. If you are retired or self-employed, you will be asked for your last one or two tax notices.
- A copy of your identity document, either a National Identity Card or a valid passport.
- Proof of address less than 3 months old. This can be a gas, electricity or telephone bill (even a mobile phone bill), a rent receipt or a property deed.
- A bank details form (RIB).
What documents do companies/legal entities need to provide for an LOA?
- A copy of both sides of the CEO's or managing director's valid identity document (national identity card or passport).
- An extract from the K-Bis
- A bank details form (RIB).
- Part of the balance sheet (Sheets 1 to 8 + 11) or 2031/2035
- The identity and contact details of the company's chartered accountant.
- Articles of association
After studying the dossier, there are three scenarios:
- Agreement: the application is accepted. Congratulations, you can now sign the order form and order your vehicle.
- Additional documents are required: in some cases, the financing organisation may ask you for additional guarantees.
- Refusal: the application is refused. You can try to submit a new application or opt for another method of financing.
When can a LOA (lease to own) application be refused?
Applications may be rejected for the following reasons:
- Insufficient income (your debt ratio is too high)
- History of non-payment
- File registrations
- Over-indebtedness
- Poor Banque de France rating (companies)
- Not enough balance sheets (companies)
Why lease an electric car?
Buying an electric car in LOA (lease with purchase option) offers a number of advantages.
- Better control of your budget - An electric car initially costs more than a combustion car. The initial investment pays off very quickly, but some models are still more expensive than their internal combustion equivalents. Buying an electric car in LOA (lease with purchase option) allows you to smooth out the initial investment and drive an electric car without breaking the bank.
- Enjoy the benefits of electric cars - The cost of maintaining an electric car is very low. What can be very expensive with combustion engine cars will cost you very little with an electric car. For example, you no longer need to change the oil. What's more, the energy recovery system puts less strain on the clutch and brake pads.
This is a major advantage when buying an electric car in LOA (lease with purchase option).
- Make sure you're getting a good deal - One of the advantages of buying an electric car in LOA (lease with option to buy) is not to consider the residual value of your electric car. If you buy your electric car under a LOA (lease with option to buy) and you don't like the resale price, all you have to do is return it. All you have to do is buy a new model from your dealer at the end of your contract. If the resale price is higher than your purchase option, you can buy the electric car back.
In conclusion
La LOA (lease with an option to buy) is an ideal solution for buying a new vehicle if you don't want to invest too much money. It also allows you to smooth out the price over several months and manage your budget more effectively. As with any contract, you need to pay attention to the details, find out everything you can and compare the offers before signing.
Buying an electric car in LOA (lease with option to buy) is a very good option once the small details of the contracts have been dealt with.
Another situation that might persuade you to buy the vehicle is if it's in poor condition. When you lease the vehicle, the dealer or lessor wants you to get back a vehicle that is in perfect condition. If this is not the case, you will have to buy the vehicle and probably do some work to restore it, at your own expense. You can then sell it or keep it for yourself.
For more information, we've put together a guide to this topic to explore the different aspects in depth:
Read our article about :
That's it! You should now be able to decide whether it's better to buy or lease your vehicle (LOA).
