What is car leasing?

Car Leasing

Car leasing is a common Anglicism meaning rental with the option to buy. This is a type of financing allowing you to lease a new vehicle for a period of 2 to 5 years, which we detail in our All about leasing file. It is possible at the end of the contract to acquire the vehicle thanks to the “final purchase option”. We clearly distinguish between leasing and rental with purchase options, which are financing solutions, and long-term rental, which is a rental method without purchase options, assimilated to a provision of service. The monthly rental payments vary according to the value of the vehicle, the duration of the contract, the annual mileage chosen at the signing of the contract, and the first rent increased (or “contribution”) optional.

Auto LOA: what is Leasing with Purchase Option?

Financing contract often called by its English term “leasing”, the Rental with Option to Purchase (LOA) allows you to rent a vehicle over 2 to 5 years. We specify the definition of the LOA in our dedicated FAQ and detail this type of credit dedicated to the automobile.

At LIZauto, it is possible to add a contribution to the LOA contract, in the form of the first increased rent, which is optional. Depending on the number of kilometers you travel per year and your budget, our advisers will work with you to define your monthly payments and the rental period, to suit your needs. At the end of the LOA contract, it is possible to buy back the vehicle by exercising the final contractual purchase option.

This financial solution can only be offered by credit institutions, as is the case for Capitole Finance-Tofino (owner of the LIZauto brand). 

LLD auto: what is Long-Term Rental?

Long Term Rental (LLD) is simply a vehicle rental, new or used, over a long period. Unlike leasing, it is a provision of a service and not financing.

You do not know the sale price of the vehicle, nor its value at the end of the contract. It is therefore a pure rental: you will not be given the possibility of buying back the VL at the end of the contract. 

This is the difference with leasing, as we explain in our definition of Long-Term Rental (LLD). The vehicle, subject to the rental, must be returned at the end of the rental.

LOA car or LLD: what are the differences?

Vocabulary subtleties or real differences between automotive LOA and LLD? 

These two automotive solutions allow you to rent a vehicle, often new but possibly second-hand. Both can vary the monthly payments according to the annual mileage chosen and the rental period defined at the signing of the contract.

However, only Leasing with Option to Purchase gives the possibility of becoming the owner of the vehicle at the end of the leasing contract, in the event of exercise of the option to purchase. In the case of Long Term Rental, the tenant must return the vehicle.

The LOA is financing, where the LLD is a service: a simple rental that lasts over time.

Who owns a leased car?

Whoever subscribes to a car leasing contract then becomes the lessee of this vehicle. The owner of the leased vehicle is the credit institution, more commonly known as the “lessor”. To become the new owner, the tenant must exercise the final purchase option at the end of the contract. However, the tenant has the use of the vehicle, the maintenance and insurance costs are his responsibility.

Car leasing or credit: what to choose to finance your new car?

LOA is preferred by consumers to the detriment of affected credit. Indeed, the share of the LOA in this financing increased from 42% in 2013 to 75% in 2018.

So, what is the difference between a car loan and the LOA, and what criteria allow you to choose one or the other of these car financing solutions?

The credit makes it possible to acquire the vehicle by becoming its owner as soon as it is purchased. It finances the vehicle in its entirety. On the other hand, leasing makes it possible to finance the loss of value of the car linked to use, that is to say to the kilometers traveled throughout the contract and to return it at the end or to buy it back according to the amount initially provided for in the contract. So you become a tenant with the possibility of becoming an owner at the end of the contract, only if you exercise the final purchase option.

How is the cost of an LOA calculated?

Each month, monthly rent is deducted from you. This is calculated before the contract is signed, taking into account various criteria:

  • The discounted price of the vehicle,
  • Its residual value, i.e. its value at the end of the contract,
  • The amount of the contribution (first increased rent) which remains optional,
  • The rental period,
  • The total mileage requested for the entire duration of the contract.

What is the difference between car leasing and rental?

If the LOA makes it possible to exercise the final purchase option to become the owner of the rented vehicle, this is not the case for rentals. A Long-Term Rental (LLD), like any other medium- or short-term rental, does not give the right to buy back the vehicle. At the end of the rental, only a person who has subscribed to a Rental with Purchase Option will have the right to keep the vehicle, if he wishes to settle the final purchase option.

This is the main difference between LOA and simple rental, but there are a few others that we list in a more detailed article.

Can you buy a car on the lease?

Leasing finances the use of the vehicle, the lessee paying a monthly rent. Insofar as he is bound to the lessor by an LOA contract, he may or may not exercise the purchase option (not mandatory) and therefore buy the vehicle at the end of the leasing contract to become the owner. On the other hand, as explained above, an LLD only finances the use of the vehicle, not its future purchase.

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