LPO – Leasing with a purchase option (LPO), sometimes also called leasing, can be an interesting alternative to buying. However, there are certain elements that should not be neglected when making the right choice.
The LPO continues to grow in the purchase share of new vehicles. Originally called hire with a promise to sell or leasing, leasing with a purchase option (LPO) consists of renting a car for a period ranging from two to five years, with the possibility, at the end of the lease contract, of buying the vehicle for a price agreed in advance. Leasing with a purchase option is very interesting because no contribution is required at the signing of the contract. You can visit uk.getaround.com and learn more about car rental. Be careful, there are nevertheless elements to know so that it does not cost you too much and that it remains a good financial operation as well as a profitable experience once at the wheel of your new vehicle.
LOA: conditions of a lease with purchase option (LPO) contract
What does the lease with purchase option contract look like? The LPO contract (not to be confused with the long term rental known as LLD) must obligatorily contain the following elements (fixed by the public authorities):
- The date and duration of the offer
- The identity of the parties
- The description and cash price of the rented car (its actual value at the time of rental)
- Terms and conditions of repayment of the rental
The LPO contract must also mention the costs of the rental. These behave like many other parameters that must also be taken into account in its calculation. Do not forget, for the model you are interested in, to compare the total LPO costs with those of a complete purchase.
- Duration of the lease
- The amount of the security deposit
- The amount, number and frequency of rents (with or without insurance)
- The repurchase value at the end of the lease in case of acquisition of the property (residual value)
- The total cost of the operation (total price of the rents including tax, to which must be added the surrender value and the cost of any insurance taken out).
You may withdraw within seven days of signing the rental contract with purchase option. In addition to the rent, the tenant must pay the costs of the vehicle registration document (issued in the name of the rental company) and the ecological sticker, insurance (at all risks and in the name of the company) and will be responsible for the costs of maintenance and possible repairs. You only become the owner of the property when you have paid the residual value of the property as stipulated in the contract. Warning: this is a rental transaction and not a credit. The mention of an interest rate is not obligatory.
LPO without contribution: the advantages
Lease with purchase option (LPO) can be with or without a down payment, which can have an advantage over a purchase. Many builders and vendors advertise in their offers on the attractiveness of LPO contracts without a down payment. However, if these LPO contracts do not provide for an amount to be paid at the time of signing the contract, in most cases the first rent to be paid is still higher than the others and therefore represents a first investment to be planned for at the time of signing the contract.
Consequences in the event of non-payment
If the tenant is no longer able to pay the monthly instalments, he is entitled to request an extension of the due date from the credit institution. If this postponement is accepted, the lessor may ask for compensation equal to 4% of the sums postponed. If the postponement is refused, the lessee may request the return of the property, the payment of outstanding rentals and a termination indemnity amounting to 8 % of the amount of the capital still due.
Loss, theft or accident of a vehicle in LOA
In the event of theft, loss or destruction of the vehicle, the insurance will reimburse directly to the rental company the indemnity provided for in the contract. Even if you no longer have a car, you are obliged to respect the commitments of the leasing contract you have signed. You will have to pay the lessor the outstanding rentals as well as the residual value (future resale value attributed to a vehicle), all of which will be reduced by the amount of the indemnity paid by the insurance. Thus, the sooner the theft, loss or destruction of the vehicle occurs after the contract is signed, the higher the amount to be paid to the lessor.
End of LOA: purchasing solutions
There are three options available to you at the end of your lease with purchase option:
Advance purchase: you can, if you wish, purchase the vehicle before the end of the lease. However, leases often include a minimum lease period. The advance purchase of the vehicle can therefore only be made after this period.
Acquisition at the end of the lease: at the end of the contract, the tenant can acquire the vehicle definitively. He will then have to pay the lessor the amount of the residual value indicated in the contract. The deposit paid at the beginning will be deducted from the sale price. It will then be necessary to have a new vehicle registration document drawn up in the name of the new owner.
If the motorist does not buy back the car, he will get back his deposit on condition that the mileage package has been respected and that the car is in good condition.