Used LOA: renting a used car, really? – Car loan

We explored the offers of used car LOA to follow up on our comparative survey between car credit and rental on new. This survey already revealed the opacity of the real costs of a rental. But with the LOA opportunity, it’s even more worrying.

Summary of the survey on rental and credit on new

Two years ago, we looked at the real differences between Rental with Purchase Option, leasing or LLD (long term rental) and new car credit.

To offer a real comparison, we had assumed the use of a new vehicle for the same period then its sale or its return. We took care to evacuate the offers included (sometimes by force) such as maintenance in the rentals. Result:

For exactly the same use and the same conditions, the LOA or LLD cost at least 1000 USD more than the best car loan.

It is true that leasing offers the advantage of not having to manage the resale of your vehicle. But at 1000 USD for resale, it’s a bit expensive! Especially since we started from the principle that when the rental is returned, there would be no repair costs. What is not sure given the zeal of some dealers! So on an opportunity LOA…

Conclusion: LOA and leasing are more expensive than new car credit. But in addition, rental type financing is somewhat protected by legislation to the detriment of the consumer. Indeed, it is the only form of consumer credit for which it is not compulsory to communicate on a legal rate! The automotive lobbies are probably not for nothing. Already, that customers are not happy to pay more than 3% of fixed taeg for the best new car loan, so if they knew what their LOA rate was, they would flee the concessions…

The offer of used LOA

The offer of used LOA

After the success of the rental with option to buy the new one, we saw the first offers of used LOA appear.

The principle of second-hand rental is to use a second-hand vehicle for a rent to be paid each month over a defined period and a maximum mileage. It may be asked to pay a first increased rent. At the end of the LOA opportunity, the client decides:

  • or to exercise the purchase option: against a defined sum from the start, the tenant can become the owner of the car.
  • either return the used car: in this case, the customer no longer owes anything following the return of the car (if there are no repair costs!)

Reminder of the lack of transparency of the LOA in general

Reminder of the lack of transparency of the LOA in general

Why don’t we like used or new LOA? We would be so satisfied to offer a true comparison of LOA offers as for our car credit comparator… but the LOA (and other forms of rental) is of an opacity without name :

  • No legal communication on the rate of used LOA (because the money advanced in the form of provision of a car is well governed by the credit legislation)
  • Inclusion of additional forced and opaque services : it is often presented as an advantage that maintenance is included for example. But do not dream, it is the way to ensure that maintenance will be done in the concession and not in a competing chain where it could be much cheaper. And it is the same for 0 km or other breakdown type guarantees. We create a forced package of overpriced services and pass the pill by monthly reimbursements.
  • Risk of repair costs : in about 2/3 of the cases it doesn’t go too bad. And again, if there is generally no restoration costs, it is because the customer has taken over a new LOA in the concession. It is the hostage taking very often denounced in the auto forums.

Why is it worse for the LOA opportunity?

Why is it worse for the LOA opportunity?

First of all, it must be understood that the used LOA can only be agreed on recent occasions. In fact, the older the car is when it is returned, the lower its value, until it no longer has any value. When a car no longer has a market value, its only value is linked to its use. So at the end of an older LOA opportunity, the tenant is forced to pay when in any case, he would have been the only potential customer.

For a used car over 2 years old, it is really better to favor used car credit which is much more advantageous than used LOA. Especially since the rates for the best used car loan are really attractive compared to the financing plan for second-hand rentals.

Important : for all those who think they are covered for breakdowns by the used LOA, they are quite wrong in the general case. Because as many optional guarantees against certain breakdowns are possible as much it is necessary to check carefully the clauses of cover and guarantee (read also our article on the auto loan with mechanical guarantee). But at the base an opportunity LOA will provide for maintenance but not breakdowns.

Conclusion: Just because a monthly payment is small does not mean that the financing is not expensive. Second-hand rentals are more expensive and more opaque than second-hand loans.