Leasing a car is becoming an increasingly-common option in France, with people able to drive new cars at a cheaper cost upfront than buying the vehicle outright. But does it really make financial sense?
The location avec option d'achat (LOA, leasing with option to buy) and location longue durée (LLD, long-term leasing) options are now more popular than traditional purchase credit in France, representing 61% of new vehicle sales figures, shows data from AAA Data.
The upfront costs are cheaper, and some leasing agreements even no longer require drivers to pay an extra ‘down payment’ up front.
“Unlike a traditional vehicle purchase, with a LOA you only pay for what you use,” said Éric Champarnaud, an associate consultant specialising in the automotive sector, to Le Figaro.
“Lease payments are lower than those with conventional credit. This is a powerful argument…[and] there are fewer barriers to entry, at a time when consumer credit is becoming increasingly difficult to come by, due to the sharp rise in interest rates,” he said.
“Another advantage of leasing is that it is often an ‘all-in-one package’ that includes insurance and maintenance. And the customer doesn't have to worry about reselling the vehicle.”
LOA agreements are more popular, for the obvious reason that they offer the driver the option to buy the vehicle at the end of their leasing period. In contrast, this is never an option with LLD arrangements.
These arrangements do appear to offer drivers higher-range, more premium vehicles than they might be able to afford if they were buying the car outright, and for lower upfront costs. This sounds like a great deal.
Yet, a study by consumer association 60 Millions de Consommateurs warned drivers to watch out for “traps” in leasing agreements, especially what it called the “restoration costs scandal”.
Under LOA and LLD contracts, the driver is required to return their vehicle in good condition at the end of the leasing period. But in many cases, the end-of-lease inspection is particularly harsh and ends with drivers paying high penalties for small defects, such as small wear-and-tear scratches.
The consumer association said that this has become “a lucrative business” for dealers, which can catch drivers out, leaving them paying high fees for repairs to a car they do not own and can no longer use.
Similarly, in 2022, the ombudsman of the Association des sociétés financières confirmed that there had been a marked increase in disputes about LOAs, “particularly when vehicles are returned”.
How can I get a better deal?
Drivers are warned to do their research in advance, to ensure they are getting the best leasing deal, and that the terms are flexible enough for their needs.
“We really need to make sure that we are opting for the most advantageous offer,” said Mr Champarnaud. For example, one current LOA offer at BMW does not allow you to adjust a current contract (duration, kilometrage, or early return), but Peugeot offers this for free from the 13th month.
1. Run the numbers of the course of the contract
For example, one Peugeot offer currently features a Peugeot 208 diesel model for €129.90 per month, with an upfront cost of €4,580. To get this deal, you need to agree to a 37-month commitment. Kilometrage is also limited to the low amount of 10,000 km per year.
By the end of the contract, you would have paid €20,800, which is more than the vehicle’s purchase price of €19,200. Similarly, during the lease period, this particular contract does not offer the driver any guarantee or repair assistance.
Tweaking the contract - which is possible if you create your own personalised lease on the Peugeot Store website - lets you change certain terms, but is likely to cost even more in the long-term.
For example, if you changed the kilometrage allowance to 20,000 km a year, and added extras such as warranties, assistance, and maintenance fees, the monthly payments would rise to €287 per month. Over the course of the contract, this comes to €24,813 in total, considerably more than the cost of simply buying a new Peugeot 208 diesel outright.
Yet, this might still represent a ‘good deal’ for a driver who wants immediate use of the vehicle and can afford €130-300 per month, but does not have €20,000-25,000 in capital to spend upfront.
2. Compare costs to other finance deals
It also makes sense to compare these costs to those that you would incur if you use traditional car finance, or other loan methods such as taking advantage of offers such as a new 0% credit card, for example. Depending on your monthly repayments, you could end up spending less overall per month in comparison to leasing, and actually own the car by default at the end.
This does not include variations on leasing agreements, which can leave drivers open to more and more maintenance and repair costs as the contract goes on.
“If you think in strictly monetary terms, you should buy a car [outright] and keep it,” said Mr Champarnaud. “On the other hand, if you want a more hassle-free life, then it's better to opt for leasing with options, even if it's more expensive [overall].”
3. Consider the type of vehicle
Value, and the overall cost, also depends significantly on the type of vehicle.
“‘LOA is more attractive for electric vehicles, because they are more expensive to buy than internal combustion vehicles, and still rare on the second-hand market,” said Mr Champarnaud.
What if I buy the car at the end of the lease?
Ultimately, it is up to the purchaser to determine if they believe the arrangement to be a good deal for them, because LOAs typically sell the car to the driver at the vehicle’s residual value.
Depending on the market, this could represent good value, but some purchasers may be hesitant to spend more to buy a vehicle that they have already paid significant sums to drive.
In practice, “only a minority” of leasing drivers buy the car at the end, says Mr Champarnaud. This is because, he said, it ends up being more expensive overall, once they have paid leasing costs.
If the driver truly intends to be the owner of the vehicle in the end, it will likely end up being better value to use normal purchasing finance arrangement, he said.
However, depending on the dynamics of the second-hand market, the driver could buy their car at a lower price than the amount they could get for the vehicle if they choose to resell. This means drivers could make money if they sell at a good price, said Mr Champarnaud.
Leasing arrangements have become more well-known and popular in recent years, particularly after the government’s ‘€100 per month’ electric vehicle leasing scheme became oversubscribed instantly, and is now set to reopen for contracts starting in 2025.
