How Lease with Option to Purchase (LOA) works Last update: 26/10/2018

lumen-digital/Shutterstock / lumen-digital

Lease with Option to Purchase allows a vehicle to be used for a certain number of years against the payment of rent. Vehicle-related costs may be included in the rental price. At the end of the rental contract, it is possible to activate or not a purchase option.

The Rental Agreement with Purchase Option

Leasing with Option to Purchase (LOA) consists of leasing a new or used car for a period of two to five years with the possibility, at the end of the lease, of buying it at a price fixed in advance. With or without initial contribution, the LOA provides for the payment of monthly payments corresponding to a rent.

To note

In a contract without contribution, the first rent is most of the time increased compared to the others.

An LOA contract must be established between the tenant and the lessor (most often, a credit institution). It should include the following:

To know

#Howto How to make Horchata Pudding with Chia Seeds - VEGAN! #RIPSari #recipe http://t.co/A0LMmoFFvv

— Trailer X Mon Sep 29 22:46:36 +0000 2014

Following the signing of an LOA contract, you can withdraw within 14 days.

What happens in case of theft?

If the car is stolen or destroyed, the insurance reimburses the lessor directly. As a tenant, you must pay the outstanding rent and the amount of the residual value after deducting the compensation paid by the insurer.

LOA fees to consider

If you sign an LOA contract, you must pay the costs related to the issuance of the gray card (in the name of the lessor) and any environmental sticker. In addition, you are obliged by the lessor to take out all-risk insurance. Finally, maintenance and repair costs are your responsibility for the duration of the rental. Often, rental companies offer options to integrate insurance, maintenance or even an assistance service in the cost of the LOA.

Possible options for the tenant

At the end of the lease, you can choose to purchase the leased vehicle. Thus, you pay the amount of the residual value after deduction of the security deposit. A new gray card is established in your name.

If you choose not to activate the purchase option, the rental ends. You recover the amount of the security deposit if the mileage package has not been exceeded and if the car is in good condition.

To know

During the LOA and after a minimum rental period, you can buy the vehicle in advance.

Consequences in case of non-payment of monthly payments

If you have difficulty paying the monthly rent, you have the right to request a postponement. If agreed, the lessor can then ask you for compensation equal to 4% of the deferred monthly payments. In case of refusal, the lessor may wish to continue the contract. In this case, you keep the car and he can ask you for compensation equal to 8% of the rent due and not paid. If he terminates the contract, you will have to return the car, pay the monthly payments still due and pay compensation based on its value.

With the LOA, you can use a vehicle for a specific period. This lease can then be terminated by the redemption or return of the automobile. Failure to comply with the contract may result in penalties.