Car loan: LOA without input: what to think about it?


Let’s say it clearly, before attacking this article on LOA without contribution, we had real a priori. Indeed, our comparative survey between the car loan and the rental had made us cold in the back as the rental (LOA, LLD or leasing) is opaque and more expensive than the car credit. Let’s see what LOA gives without input.

LOA reminder

LOA reminder

Rental with option to buy is the possibility given to a customer to be able to rent the vehicle that he will use rather than to buy it. As the official website of the French administration indicates, what should be remembered is:

  • The possibility of being a tenant of a property for a determined period
  • A financial company purchases the property on behalf of the future tenant
  • The tenant agrees to pay rent every month
  • At the end of the rental period, the property can be purchased or returned

The LOA without contribution has no legal difference with the rental with option to purchase with contribution. The LOA contract must mainly provide for:

  • the detailed description of the car
  • the cash purchase price of the car
  • the duration of the rental, the amount and the number of rents
  • the amount of the call option
  • the consequences in the event of non-payment of rents

IMPORTANT : what is completely crazy with the LOA is that the contract may not stipulate the rate of the car loan even though this type of financing is technically designated as a consumer loan !! In fact, it is the only form of credit that escapes the rule. Guess which lobby went there?

And as much to say that the car manufacturers and their financial subsidiaries… are not asked to avoid communicating on the LOA rate! It is very simple that it is a LOA without contribution or not, we have never seen any communication indicating the rate. And for good reason, customers would be afraid. While the car loan is much more transparent.

LOA without contribution

LOA without contribution

What is the specificity of an LOA without input? Let’s go back to the formula defining the amount of a purchase via a rental with option to buy:

Cost of LOA = First Rent + ((Number of rents – 1) X Amount of rents) + Purchase option

NB: This formula is also valid on a used LOA.

First rent of an LOA
We set it apart because it happens very often that the first rent is increased. This practice has two advantages for dealers. The first is to guard against the risk of the client, the financing to be carried out is mechanically less important. The second is that it makes it possible to reduce the amount of future rents and therefore to offer more enticing advertisements. Moreover, an LOA without contribution is in fact often designated like that by abuse of language. We’d better talk about LOA without the first gross rent.

Purchase option
This is the amount that must be paid at the end of the rental period if you wish to acquire the vehicle.

It may happen that there is a deposit on the LOA but it is rather in the context of leasing for professionals. The LOA without contribution is not a rental without deposit.

LOA with contribution
The LOA with contribution is a rental with option to purchase for which the rental amount is reduced by a direct contribution in money or indirect via a takeover. However it is better to avoid making a contribution on an LOA because if you do not buy the car in the end, this contribution is lost.

Conclusion: What one could really call an LOA without contribution is an LOA without first increased rent, without condition of recovery and without first payment of money.

Example of the cost of an LOA

Example of the cost of an LOA

With an LOA without contribution, what is annoying is that you do not know what you are paying since there is no obligation to communicate on the rate. But that’s not all, since it’s a monthly payment that is highlighted, it’s a great way to add insurance or guarantees or even maintenance. This is another point on which we must be vigilant because there is no obligation to take them.

Now let’s take an example to see what the LOA rate would look like. Indeed, as the formula shows, an LOA is never more than the equivalent of a sum of money which is advanced and which is reimbursed month by month with the equivalent of an early repayment if the we decide to pay the purchase option. We can therefore completely simulate the rate of an LOA.

All calculation data must be mentioned on the rental contract, whether for an LOA without contribution or not, the calculation formulas do not change.

Example: CH-R Hybrid Toyota
Amount to be funded: $ 26,600
First rent: $ 3,900
Amount of other rents: $ 299 / month
Duration of the LOA: 37 months
Amount of the purchase option: $ 15,890

Our simulation shows that this LOA financing has an equivalent taeg rate of 6.83%. However whatever the approach, we think that it is not very complicated to find a cheaper car loan! We understand better that the rates are not displayed in LOA.

It is also a shame that the LOA rates without contribution are not displayed because the LOA provides a real complementary service that does not provide credit: do not have to worry about the resale of your car. Because in the end, the advantage as a service of LOA without contribution compared to credit without contribution, it is good that the resale of the vehicle is no longer a problem. It would seem fairer to us that the price of this service be much more clearly expressed.