After 2020, 2021 was once again disappointing for new car sales in France. Only 1.6 million registrations took place over 12 months compared to 2.2 million in 2019. A trend that continues at the beginning of 2022 but could benefit a market that is becoming more democratic in our daily lives.: Leasing. For several years, car rental has been a very beneficial solution from an economic point of view. But is this really the case? Here are some of the answers…
How does leasing work?
The principle of leasing is as follows: a bank or credit institution buys a car for a professional or individual, who undertakes to pay monthly rent to use the car for a certain period. It is important to understand that the financial institution is the owner of the car. The term of the lease is variable (generally between 3 and 5 years) which affects the amount of monthly payments to be made: The more the contract is distributed over time, the lower the rents. This is the first element to answer our question that will delight those who want to save money in the long run.
Another important element, when drawing up an estimate or a contract, It is possible to add a contribution. By the same logic, the more significant the contribution, the more twice the monthly payments will be made: a real account must be made!
It is interesting to note that agents and leasing specialists often play on monthly payment amounts in order to offer extremely low prices: a good marketing argument actually hides a contract with a large contribution! Therefore, always check these three pieces of information before embarking on a lease: mileage per year, contribution amount and contract term.
Our tip: Note the differences between rental offers with a comparison. You will notice it later Often the best financial leasing companies are those with the lowest rents without contribution !
Can the rental file be refused?
Financial institutions can completely refuse to lease to a client. Indeed, the bank or credit institution grants the lease on its own terms, which are especially related to the financial capabilities of the consumer. If the bank does not have a sufficient guarantee on the solidity of the file (in particular on the client’s ability to pay rent each month), it will not comply and the file will be rejected. This is regularly the case for individuals who apply for a lease while in existence under a fixed-term contract (CDD) or for companies that do not yet have two balance sheets on their credit (a minimum of two years of existence).
What are the ideal conditions for renting?
As we have seen, financial institutions are quite capable of rejecting a file if it is not reliable enough. Conversely, some profiles are more attractive to funding organizations: individuals with perpetual contracts (permanent contracts) who are no longer under surveillance or professionals whose business has been in existence for more than two years. The monthly income should be much higher than the rental rent: in general, organizations ask for a net salary three times higher than the monthly payment for a car.
How are the best rental offers identified?
As with any market that has very good momentum, players are evolving day by day and their number is changing. The world of leasing is no exception. Having so many players in the market has the advantage of establishing price competition and continuous price improvement: a godsend. However, beware of these ever more tempting and attractive offers: many of them will offer you unreasonable prices that will eventually be doubled or even tripled once the estimate is made.
Our advice? Do not look to rent with low-cost companies that offer you the “lowest rates in the market”, but rather target a car rental professional, an expert in finance, who will provide you with personalized support. the reason ? It is very clear that it is better to work with finance professionals, who will really know how to get the best rates and provide you with maintenance, assistance, tyres, etc., rather than working with marketing experts!
LOA or LLD, which is the better option?
Lease with option to buy (LOA) and long-term lease (LLD) are two forms of leasing that have interesting features.
The first allows the lessee to place a purchase option on the vehicle, and this is from requesting a quote for the vehicle. A LOA generally lasts two to five years. It is possible to incorporate a contribution at the beginning of the contract as we saw earlier. The amount of this contribution is customizable and generally represents between 10% to 20% of the vehicle purchase price. Upon expiry of the contract, the lessee has the possibility to purchase the vehicle so that it becomes its ultimate owner. Often in this type of situation, the car is sold at its original price.
Another big plus with LOA, it’s a good way to avoid paying fines if it proves too expensive for him. Certain rules must already be respected when returning the car. The latter must be returned in good condition and the renter must also respect the pre-set mileage. Otherwise, he (obviously) will pay compensation to the lessor.
With a long-term lease (LLD), if they can’t buy back the car, the renter has lower monthly payments than the LOA. Also, in the event of a breakdown, the repair and maintenance of the car as well as its assistance is included in the rental agreement. Obviously, LLD is suitable for people who change their cars regularly and would like to have a new one with every contract.
Is leasing economically attractive?
In conclusion, LLD is undoubtedly an interesting solution that is economical in the short and medium term (and probably best on a very large number of vehicles). It is well suited for those who change cars often.
LOA, on the other hand, is a viable medium-term solution: if a person is not wondering whether he is interested in buying a car or not, and if he wants to choose a rental, then this option is preferable, since it leaves the possibility of taking back the vehicle at the end of the contract.
Buying is the best long-term solution: if a person is sure to keep his car for more than 5 years, then it is very clear that the calculation of depreciation will be better in this way.