Leasing with the right to buy, or more commonly known as “LOA”, is a financing solution that has proven itself for a long time in the French automotive environment. I have to say that the formula is quite attractive: you lease a car for three, four or five years with pre-set monthly payments, and then at the end of the lease term you decide whether or not to pay for the purchase option. also installed earlier.

on paper this type of financing is interesting in that, in a way, you only pay for what you consume. At the end of the lease, you can return the car to start (or not) with a new product with the same formula.

More transparency for customers

Yes, except that this system also has its excesses, or at least its small set of secrets, for example, when you take a loan from a bank at a rate of 4.5%, naively thinking that this loan will cost you 4,500 euros if you borrow 100 000 euros. The parallel with credit is not innocent, because when you sign an LOA, if you do not do the calculation yourself, You do not necessarily have all the information at your disposalstarting with the actual value of your LOA with a breakdown of the numbers.

This type of contract still does not fall under the obligation to include the total value of the transaction in the general and special conditions of sale. However, this could change in the coming weeks. Indeed, the directive adopted by the European Council on October 12, 2023, which will be published in the Official Journal of the European Union in a few weeks, will bring some order to all this.

This directive will effectively require lending institutions to list the annual percentage rate (APR) of the loan, just like any loan. On paper, it may seem quite small, since it will not change anything in the price of the LOA, but psychologically for the client, it can change everything, because in fact, analyzing, as for a classic loan, we notice that the cost of financing is not nearly as anecdotal compared to what one might think.

Franco-French specificity?

The financial sector also sees another “problem” in this new obligation to specify the annual interest rate, as it will lead to compliance with another obligation that will be more difficult to fulfill.

Different lending institutions must now also respect maximum loan rate under LOA. In France, the interest rate is determined monthly by the Bank of France and for each type of loan. At the time of writing, it is currently 12.17% for consumer loans over €3,000 and less than or equal to €6,000 and 6.92% for consumer loans over €6,000 and less than €75,000.

Except the LOA doesn’t just finance the car. Very often there are additional services, such as various insurances around the financing, an extended warranty for the duration of the rental car or even its maintenance. There are so many elements that revolve around the car and that should be taken into account, according to professionals in the field, even if the level of wear and tear (a French specialty in Europe) is regularly revised upward.

In any case, this new directive will need to be closely watched because, if the hurdles slip on the LOA wheels, many French households will no longer have access to certain new cars, and given current rates on conventional loans, they should not be in able to take on In general, the French market for new cars may decline.

Read also:
• ZFE: According to some, they would benefit the automotive industry
• ZFE radars: how to spot them accurately?
• ZFE: What is the future impact on our way of life?