Car leasing: how does it work?
Car leasing, also called rental with a purchase option (LOA) or long-term rental (LTR), is a long-term car rental contract.It allows you to benefit from a new car with or without down-payment and for an all inclusive rental fee, excluding insurance.
With a rental cost, which costs less than the amount of a car credit repayment, leasing is an option that is increasingly valued by individuals. This was the choice made by Daniel:
”With my wife, we have invested a lot of money into the purchase of our new house in Bascharage. As my car was already a few years old and I didn’t really have the possibility to take out a new loan, I opted for leasing. I drive a brand new car and I know exactly what it will cost me each month.There are no surprises and in two years, I’ll change it!”
This service is offered both by leasing professionals and by car manufacturers. The approach is the same:
- Select the vehicle that you wish to rent, i.e. the brand, the model, the options, the colour...
- Determine the term of the agreement: more often between 2 to 4 years.
- Estimate the annual number of kilometres that you wish to cover (from 10,000 to 35 000 km)
- Return the vehicle at the end of the contract
Other contract criteria may differ from one company to another. Certain leasings include for example the maintenance fees. Lastly, certain rental agents give you the opportunity to acquire a vehicle at the end of the contract.
What is the price of private car leasing?
The cost of a long-term rental is calculated according to the model and duration criteria and the number of Km. At Autopolis in spring 2023, the admission price is €299 for the rental of a Fiat 500 over 24 months with 10 000 Km per year. Whilst the highest option exceeds €900 for an electric model Volvo XC40 for the same duration and number of kilometres. Car leasing is a solution accessible to all budgets.
Can we benefit from a lease without down-payment?
Yes, it's one of the advantages of leasing. You commit yourself to a monthly cost, there is no need for a down-payment. But, if you offer your old car for trade in, you can reduce your monthly expenses.
What are the other advantages of private car leasing?
- To have a new car and benefit from the latest innovations
- control your budget: the amount of rental is fixed and generally includes the maintenance costs (revision, draining, tire change, etc.)
- No need to worry about resale, you can simply return the vehicle at the end of the contract.
Advantages that tempted Nico and Manuel:
”We wanted to buy our daughter a car for her 18th birthday. But at the time, she wished to continue her study programme abroad. We therefore opted for a Fiat 500 long-term rental over a period of 24 months. We then returned it just before the departure of our daughter to an American University” explains Nico.
Manuel already knew about business leasing. When his wife’s car needed to be replaced, he naturally sought a private leasing solution.“You sign the contract and that’s it. There are no constraints, we know exactly how much we are going to pay. We even traded in our old car...Moreover, now, we have a new car every two years!”
What are the disadvantages?
But the leasing only has advantages. It is for example not recommended when you don’t have a very clear idea of the number of kilometres covered during the year.
In fact, it’s expensive to go beyond the anticipated number of kilometres” explains Eric. Depending on the sponsors and contracts, the additional kilometres will be invoiced between 10 and 20 centimes per kilometre. Equal to an extra 1,500 euros to pay out if you exceed the distance of 10 000 km indicated in the contract.
Similarly, the vehicle should be returned in a perfect condition, including the seats, plastic components and bodywork. Otherwise, additional costs will be requested.
Keep in mind that at the end of the lease, you will no longer have a vehicle. You will therefore need to take out a new leasing contract and allocate sufficient funds.
What insurance do you have for the specific leasing?
You are free to choose your own insurer yourself. In such a case, the lessor will ask you to prove that you have taken out All Risks cover (Casco).
In summary, car leasing is a means of driving a nice vehicle for a low rental price. But, be careful to make sure that you understand all of the terms of the contract before committing yourself.