Classic car loan or LOA? Advice and tips not to be rolled

The LOA – or rental with option to buy – never ceases to seduce the French. But what does this leasing (rental) formula really correspond to? How does it work, can we compare the rates and get an LOA opinion? Let’s play the game of comparing a classic car loan financing with an LOA formula.

LOA Opinion: an astonishing success

LOA Opinion: an astonishing success

Almost three-quarters of French people prefer financing via LOA rather than car credit for the purchase of a new car. It must be said that the commercial discourse is well established. Before drawing up an opinion on the LOA, let’s take a look at how it works:

  • Rental of a vehicle over 2 to 5 years on average, on the basis of a package. Fixed in advance, the monthly payments are calculated according to several criteria (number of kilometers, maintenance contract or not, presence of car insurance, etc.).
  • At the end of the contract, it is possible to buy the vehicle at the amount fixed on the contract, or to return it (recovery).

Operation can almost make you forget that the vehicle does not belong to its user for the duration of the rental. In our opinion, the LOA rests on unstable foundations. We logically wanted to dig a little further, so that any borrower is well aware of the advantages and disadvantages.

Know everything to get an opinion on the LOA

Notice: LOA is a comet in the world of car loans. It revolves around consumer credit laws but is only very little affected. For example, LOA is the only type of credit that does not have to display its rate. Surprising isn’t it? The French trust the formula, reassured by the promise of small monthly payments that are rather easy to repay. It is true that on paper, the LOA has some fine arguments to put forward. We will however see that it raises several questions, starting with that of the total cost of the operation.

LOA opinion, questions and answers

What type of vehicle is it available for? LOA is mainly offered on new vehicles, but the used LOA market is growing.
What is the duration of the contract ? Generally 24 to 60 months (5 years)
How is the monthly rent calculated? Based on an annual mileage package
Is it necessary to add a personal contribution? No, it is possible to obtain an LOA contract without contribution
What are the options at the end of the contract?
  • Pay the purchase option and become the owner of the vehicle
  • Resell the car to settle the purchase option without keeping the vehicle
  • Benefit from a recovery of the vehicle and use the amount as a contribution to renew your vehicle (with LOA or without)

And the LOA rate in all of this?

It is very complicated to determine the APR rate of financing via used or new LOA. Indeed, the LOA is a good opportunity to include insurance, assistance or interviews, without it seeming to cost the least amount of USD.

This is a rather surprising finding, inasmuch as the APR rate has been designed to transparently indicate to the consumer the total cost of his credit. Difficult to get an opinion on the LOA without having all the keys in hand. However, we have managed to clearly identify the costs of the LOA and therefore place them against those of a loan under the same conditions.

The absence of the auto credit rate is penalizing for the borrower, left to himself. We will see in our LOA opinion that certain professionals take the opportunity to sell packages or options that are not necessarily necessary, without even the buyer noticing.

Notice: LOA vs classic car credit, which is the cheapest?

Notice: LOA vs classic car credit, which is the cheapest?

Here is the method we applied in order to compare the cost of financing via LOA with that of classic new car credit:

  • LOA simulation without input on a specialized site (AramisAuto), without maintenance contract or optional insurance.
  • Calculation of monthly payments of the LOA formula over 60 months (5 years), added to the cost of the purchase option. These two amounts make it possible to define the real price of the car loan.
  • Comparison of the total cost of LOA with that of a classic new car loan at the best APR rate, using our comparison tool.
Simulation performed on the basis of a credit for a new Clio IV, displayed at a price of $ 16,990 on AramisAuto. Classic car credit LOA AramisAuto
Duration of credit or rental 60 months 60 months
Number of kms per year Limitless 15,000 km
Insurance Unsubscribed (option) Unsubscribed (option)
Best APR rate obtained online 3.10% 8.87%
Monthly fees 305.89 $ 237,00 $
Cost of the call option Void: the borrower has paid everything after 6 years. 8203.00 $
Total cost of credit 1353.40 $ 5433.00 $

Our opinion: the LOA has lower monthly payments than conventional car credit, but its total cost is almost four times higher ($ 1,573 compared to $ 5,433). Obviously, the submerged part of the iceberg is not the one we talk about on television.

However, a classic online car loan  is always cheaper in terms of total cost than an LOA formula. The observation also applies to auto credit from manufacturers or even banks. It should not be forgotten that one becomes the direct owner of the vehicle in the event of new or used car credit. It is thus possible to resell the vehicle at any time, allowing for example to settle the credit contracted before its term. Our opinion on LOA is therefore based on concrete facts, and confirms a study already carried out in the past (see “LOA, LLD, car credit: which is the cheapest?”).

LOA notice: an overpriced option?

LOA notice: an overpriced option?

The opinion of all specialists on the LOA indicates that it is therefore both more expensive and less secure than a car loan. Dealers or resellers surf the promise of affordable monthly payments, but rarely highlight the total cost of the operation. However, it will be necessary to pay the amount of the recovery at the end of the contract to keep the vehicle, including in the case where it is sold to an individual or taken up by another professional.

Above all, in the event of a recovery, the professional will be very attentive to the general condition of the vehicle. Any damage or wear that is not suspect can directly impact the price of the recovery displayed at the start of the contract. Our opinion on the LOA unfortunately raises other rather uncertain elements. Let’s look at the points to check together before rushing into a rental contract with option to buy.

LOA notice: what you need to know before committing

The conditions of an LOA formula vary enormously according to the resellers. Here is all you need to know to get an opinion on the LOA, and thus avoid unpleasant surprises:

  • The LOA maintenance contract is often included in monthly payments, but is not mandatory. It may be worthwhile to inquire about its cost, as well as the maintenance operations it covers. The margin is more or less important according to the dealers. Keep in mind that new / recent car maintenance is usually inexpensive for the first three years.
  • Most comprehensive auto insurance is also offered (and mandatory) most of the time. Again, any borrower is entitled to opt for other insurance than that offered.
  • Insurance / assistance of the vehicle for any breakage or breakdown that could affect the vehicle.
  • A LOA package is partly calculated according to the annual mileage. Please note that any excess generates additional costs at the end of the contract. It is important to accurately estimate his need, a small wheeler for example only very rarely needs a package at 15,000km per year.
  • It is possible to retract within 14 days, as with any consumer credit.

The final word

In our opinion, the LOA is never interesting from a purely financial point of view. Renting with an option to buy can, however, allow certain individuals whose car credit has been systematically refused to access a vehicle more easily. We advise to learn about classic new auto credit solutions before jumping on an LOA. By selecting “new car loan (-2 years) on our form, it is possible to obtain a first response in principle at the best APR rate.

We invite our readers to share opinions and experiences – positive or negative – about LOA in the comments (bottom of page).