Car rental: LOA (rental with purchase option) or LLD (long-term rental)?

Verified 29 December 2023 - Directorate for Legal and Administrative Information (Prime Minister)

You need a car, but you can't or won't buy it? You can opt for the LOA (rental with purchase option)) or the LDD (long-term rental). These forms of rental allow you to use a car without buying it, but paying rent. The LOA or leasing is treated as a consumer credit and the LDD as a lease. We present you with the information you need to know.

LOA

The LOA is also called leasing, hire purchase, rental with promise of sale or leasing.

It's a rental with a ability to purchase the property at the end of the lease, at a price set from the start.

This contract is widely used in the automotive sector, but it can also be used for other capital goods (household appliances, machinery, etc.).

The LOA is offered by professional car dealers (dealer, garage, leasing business) or by banks or credit institutions.

The LOA allows you to use a vehicle for a certain period of time (between 2 and 7 years), in exchange for the payment of monthly rents.

Some rentals also require payment of a contribution or of a first rent plus. Thus, as a tenant, you can pay in several times and in different ways the price of the car: deposit or 1er rent plus, monthly rents and purchase price at the end of the rental.

Example :

For a car with a contract value of €10,000, you can pay for a 3-year contract:

€1,000 down payment,

€7,200 of rents (€200 per month over 36 months),

€1,800 redemption prices.

Total: €10,000.

At the end of the rental period, you have the option to purchase the vehicle at the price set in the contract, but you are not obliged to do so.

To take a vehicle in LOA, you must sign a contract with a business that offers this service.

The trader who offers a LOA contract is obliged to respect the consumer credit underwriting rules which are intended to protect the consumer.

Information prior to the contract proposal

The leasing professional you contact makes a commercial proposal according to your request (model of car desired, duration of contract, amount of rent, amount of contribution, etc.).

The professional will look at your financial situation to see if you can meet your payment obligations, i.e. to pay the sums which will be at your expense in case of signature of the contract. Thus, he must consult the bank files to check whether or not your name appears in the list of people who have had payment issues.

The professional also has theduty to inform you the characteristics of the proposed credit, and the risks associated with default. He has to give you a standardized pre-contractual fiche, a document that indicates the important elements of the loan, such as the interest rate, the amount of the monthly installments and the cost of the loan.

If, after a thorough examination of your situation, the trader decides to respond favorably to your request, he or she must submit a proposal for a contract to you in writing.

Proposal for a contract

The contract proposal must be in writing or in a durable medium. And it must be separate from advertising materials and the pre-contractual information sheet.

The contract must contain the essential elements of the LOA, in particular the following:

  • Contact details of the lender, lessor or lessor
  • Borrower and bonds, if they exist
  • Description of the goods concerned
  • Cash purchase price of the leased property
  • Duration of the rental operation (usually between 2 and 5 years)
  • Number of kilometers allowed
  • Remaining amount to be paid in case of purchase at the end of the rental
  • Amount of rents and their number
  • Warning of the consequences of a default by the borrower
  • Existence of a withdrawal period
  • Address of the Authority for Prudential Control and Resolution (ACPR) and that of the Departmental Directorate for the Protection of Populations (Repression of Fraud) competent in the event of a dispute
  • The total amount owed by the borrower over the lease period.

FYI  

The lessor shall ensure that the annual percentage rate of interest does not exceed wear rate.

Signature of contract

To sign the contract, you must mark at least 2 copies of your lender's proposal as "Read and Approved," and then date and sign them.

You must give a copy of the contract, dated and signed to the landlord.

Right of withdrawal

If you accept the offer and sign the credit agreement, you have a withdrawal period after signing.

You have 14 calendar days from the signature of the contract to carry out this procedure with the lending institution. You can use the form provided with your credit agreement or mail template:

Withdrawal of consumer credit

You must send your request by registered letter with acknowledgement of receipt.

Security deposit

The lender can ask you for a security deposit, to limit its risks.

The amount of the security corresponding to a fixed sum (€1,000 or €2,000) or a percentage of the value of the vehicle (10%of €10,000 = €1,000).

At the end of the rental contract, if you do not wish to purchase the car, the renter must return the deposit, unless there is a dispute.

If you decide to purchase the vehicle, the security deposit will be deducted from the purchase price stipulated in the contract.

Please note

The security deposit is interest-free.

The obligations that you must fulfill as a tenant are set out in the LOA contract.

Payment of rents

You have an obligation to pay the rents as set out in the contract from the date of receipt of the vehicle.

The amount and the number of rents you have to pay are foreseen as soon as the contract is signed.

Some contracts have a 1er rent plus.

Unlike the security deposit, the surcharge applied to the 1er The rent is not refunded if you decide not to buy the car.

If you default on rent, the lender can terminate the contract or not.

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The lender wants to terminate the contract

You must then return the vehicle, pay the late rents and pay compensation calculated according to the terms of the contract. This allowance is generally based on the value of the vehicle and the remaining duration of the contract.

The lender does not want to terminate the contract

The situation varies depending on whether the lender agrees to defer the debt.

Lender agrees to carry over debt

If the lender wants to defer the debt, you can keep the vehicle, but the lender can ask you for compensation equal to 4% of the deferred rents.

The lender refuses to carry over the debt

If the lender doesn't want to carry over the debt, you can keep the vehicle, but the lender can claim compensation equal to 8% of the rent owed and unpaid.

Vehicle maintenance

Car maintenance costs are at your expense as a tenant.

You must keep the vehicle in good working order for the duration of the rental.

If it appears during use that the car is affected by a hidden defectSo it's up to you to take the steps to have it repaired.

In the event of an accident, you must cover the cost of repairs if they are not covered by the insurance of one of the other persons involved in the accident.

Vehicle insurance

If you take a car by leasing, leasing or rental with option to purchase, you must ensure it at least with the civil liability guarantee.

The driver of the car must be able to prove, in the event of a roadside check, that the vehicle is insured.

This warranty does not cover damage to the vehicle or injury to the driver.

It may therefore be useful, in order to avoid incurring significant costs in the event of a disaster, to subscribe to additional guarantees.

You can also take out specific insurance for leasing. It makes it possible to take over, in the event of destruction or theft of the vehicle, the difference between the market value and the new value of the vehicle.

Your lease ends at the end of a rental period defined in the contract, which is generally between 2 and 5 years (24 and 60 months).

At the end of this period, your credit expires.

You can freely decide to buy the car or return it to the car rental company.

You can also ask to buy back the vehicle before the end of the contract.

In any case, the renter cannot oblige you to agree to purchase the vehicle in exchange for its agreement to your request for leasing.

The situation varies depending on whether you decide to purchase the vehicle or not, and depending on certain unforeseeable events (accident, death):

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You want to buy the property

The option you have to buy the car at the end of the contract is called call option.

If you exercise the purchase option, you will become the owner of the vehicle and you will be required to carte grise change the (now called certificate of registration) on your behalf.

The purchase price will have to be paid as stipulated in the contract.

This price corresponds to the difference between the value of the car, as indicated in the contract, and the total sums paid by you in return for its use (deposit and rent).

You should consider claiming your security deposit back.

You don't want to buy the car

You must return the car to the renter. He must return your security deposit.

However, if the car rental company considers that the car has defects due to poor maintenance, it may retain part or all of the warranty if this is provided for in the contract.

You have the right to challenge his decision and to ask to be present at the examination of the vehicle by an expert.

If you do not return the vehicle within the deadline, the renter can file a complaint against you for breach of trust.

This is a offense for which you risk a sentence of up to 5 years' imprisonment and €375,000 of fine.

The vehicle is out of order

If you have an accident with the vehicle and it is out of use, the renter will terminate the contract.

Death of tenant

If you die during the lease, the landlord can decide to terminate the contract.

If you have taken out death insurance, the insurer pays the rent still due to the lender until the end of the financing contract, within the limit of the guarantee.

If you have not taken out death insurance, your heirs must pay the lender the balance of the financing.

This balance therefore constitutes a debt to be entered in the estate liability.

You can try to find an amicable solution first before going to court.

Attempting to reach an amicable agreement is a mandatory prerequisite for disputes whose value does not exceed €5,000.

Mediation or conciliation

In case of dispute with the renter (dispute of the amount of the rents, dispute of the amount of the repairs of the end of the contract, difficulty of recovery of the guarantee...), you can ask for the intervention of a mediator or a conciliator of justice.

Please note

You can find legal information about unfair lease terms on the unfair terms committee website.

Refer the matter to the judge

If mediation or conciliation has failed, you can go to the judge.

You can take legal action for damages for the damage suffered. For example, if you feel you have overpaid rent.

The competent judge shall be the protection litigation judge. The judge of protection disputes that you must refer is the one of the court competent for the seat of the business.

You need to hire a lawyer if the value of the dispute is greater than €5,000.

The judge of protection disputes that you must refer is the one of the court competent for the seat of the business.

You can also to report unfair commercial practices to the DGCCRF: titleContent.

LLD

Long-term leasing (LLD) is a lease agreement with no purchase option.

This contract gives you the right to use a car (or other property) for a long period (from 12 to 60 months), in return for paying monthly rents.

The renter can also ask for a deposit or a first rent plus a guarantee.

At the end of the period of use agreed in the contract, you must return the car to the rental company, which remains the owner during the rental.

The LDD is offered by professional car dealers (dealers, garage, leasing business) or by banks or credit institutions.

The principle of the SLA is the same as that of short-term rentals: you pay rent for the use of the car over a given period of time.

And you must use the vehicle according to the terms of the contract.

The lessor shall fix the amount of the rent in such a way that the operation is profitable for the lessor.

So the rents he's offering you are higher than the monthly payments you would have paid if you had made a loan to buy the car.

Example :

For a car bought on the market at €10,000, the landlord can charge you over the duration of the contract rents the total of which €12,000 or €13,000.

To take a vehicle in LLD, you must sign a contract with a business that offers this type of service.

The consumer credit underwriting rules do not apply to the LDD contract, unlike the LOA contract.

Preliminary information

The landlord is not legally obligated to review your financial capacity before making you a contract proposal, but in practice will do so to make sure you have the means to pay the rent.

They will ask you about your income and expenses to determine if you have the ability to pay rent and maintain the vehicle throughout the term of the contract.

Proposal for a contract

The lessor will indicate in the contract proposal the important elements on the terms of the rental:

  • Contact details of the landlord, tenant and bonds, if they exist
  • Description of the proposed vehicle
  • Cash purchase price of the leased property
  • Duration of the rental operation (usually between 1 and 5 years)
  • Mileage allowed over the duration of the contract
  • Amount and number of rents over the duration of the contract
  • Amount of penalties for exceeding the authorized mileage
  • Amount of penalties in case of late payment or non-payment of rent
  • Warning about the consequences of a borrower default.

Signature of contract

To sign the contract, you must mark at least 2 copies of your lender's proposal as "Read and Approved," and then date and sign them.

You must give a copy of the contract, dated and signed to the landlord.

Right of withdrawal

The withdrawal period is not required by law, but may be provided for in the contract.

Warranty

The renter can ask you to make a deposit in cash or by check or to bring the surety of a person.

Payment of rents

By signing the contract, you agree to pay the rents until the end of the rental period.

Some contracts have a 1er rent plus.

If you are in default of rent, the renter applies what indicated in the contract.

The contract may provide that from a certain number of unpaid rents the lender has the right to terminate the lease or to recover the property, and require payment of the rents due and penalties.

Maintenance of the property

The LLD contracts provide for the maintenance costs of the vehicle to be borne by you or included in the rents.

In any case, you must keep the car in good working order for the entire duration of the rental.

If it appears during the rental that the car has a hidden defect, it is up to you to make the steps to have the vehicle repaired, but at the expense of the renter.

Compliance with conditions of use

The contract sets out the conditions of use of the vehicle, and in particular the number of kilometers you are entitled to drive over the rental period.

Failure to comply with the mileage limits shall be penalized by charging additional rents in accordance with a method of calculation laid down in the contract.

Property Insurance

You must insure the car as if you owned it.

In the event of an accident, you will be responsible for the repair costs, but you will also be responsible for collecting the insurance premium.

The renter can offer you insurance, but you are free to insure the property with the insurer of your choice.

The LLD ends at the end of the lease period defined in the contract.

At the end of this period, you no longer have to pay rent and you have to return the property to the owner establishment.

But the car rental agency can charge you a fee if you have exceeded the mileage stipulated in the contract or if you have damaged the vehicle.

The method of calculating these fees and penalties must be defined in the contract.

If you want to stop the rental before the end of the agreed period, you must apply the rules provided in the contract.

In general, LLD contracts provide that in case of early termination the tenant must pay all the rents due for the period from the date of termination until the end of the contract.

If you are in this situation, and you believe that you have a legitimate reason for early termination, you can try to negotiate with the landlord or take the matter to court.

You can try to find a negotiated solution or go to court.

Mediation or conciliation

In case of dispute with the renter (late payment penalties, additional mileage scale, termination compensation, warranty recovery...), you can ask for the intervention of a mediator or a conciliator of justice.

Please note

You can find legal sources regarding unfair lease terms on the unfair terms committee website.

Go to court

If mediation or conciliation has failed, you can go to court.

You can ask the court to cancel or reduce the amounts claimed from you by the landlord.

You can also request damages if you feel you have been harmed

For example, if the landlord has entered your security deposit to pay early termination fees that you dispute.

The competent judge shall be the protection litigation judge.

Who can help me?

Find who can answer your questions in your region

  • 0809 540 550 DGCCRF - ResponseConso

    Having trouble following a purchase? Do you have a question about a point of law before buying or ordering?

    You can get an answer from a DGCCRF: titleContent by calling the 0809 540 550.

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