Published on : 29 January 20203 min reading time
From the first year of operation, the depreciation of a new vehicle can reach 30% of its acquisition value. Under these conditions, the Long-Term Lease, over a period of 12 to 60 months, is a very interesting alternative for individuals looking for a new vehicle. Here is what you need to understand.
The Long-Term Lease: principle and operation
The LLD rental is a form of vehicle leasing, the particularity of which is the duration of the lease: from 12 to 60 months, often 48 months. All types of vehicles are available in LLD: vans, 4×4, light, cars without a licence.
The lessee pays the monthly instalments provided for in the contract, the amount of which is based on several parameters: replacement value, residual value (estimated at the end of the contract), rental period, estimated driving time during the rental period, services, insurance.
LTC formulas obviously vary from one lessor to another. The lessors are generally car dealerships, who wish to offer solutions to individuals who do not wish to invest in the purchase of a new vehicle.
In the case of long-term leasing, the vehicle registration document is issued in the name of the lessee, even though the lessee is not the owner. Consequently, any damage caused during the rental period is the responsibility of the lessee.
Advantages of the LTC
The LLD is an alternative without equity and credit to the outright purchase of a new vehicle. All you must do is pay the monthly instalments stipulated in the contract.
The monthly payments generally include the costs of the following elements: insurance, maintenance, repairs, technical inspection. This allows you to control your automobile budget, which is substantial for large cars.
The steps are just as simple. Once you have chosen your vehicle, you must complete your file and make a security deposit. The car rental company will often take care of the vehicle registration, which will be issued in your name.
A recurring problem for private individuals concerns the possibilities of reselling the vehicle. With a long-term leasing contract, you don’t need to think about this anymore, since you return the vehicle to the lessor, possibly recover the amount of your deposit, and can opt for a new rental. This is very practical and allows you to change your vehicle on a regular basis.
Disadvantages of the LLD
Despite its important advantages of flexibility and simplicity, LLD has some disadvantages.
First and foremost is cost. By discounting rents, long-term leasing is often more expensive than buying a new model. It is obviously a financial transaction for the lessor, and a financial counterpart exists for the low rents and the absence of an initial contribution. Similarly, the absence of a purchase option.
Annual driving limits are also imposed (around 20,000 km for a petrol model, 15,000 km for a diesel model). Penalties for exceeding these limits are provided for in the contract and are generally significant.
The early return of the vehicle (and therefore the end of the lease contract) is generally only possible at the cost of a high penalty.
Also, at the time of the restitution, the noted damages not being the subject of a contractual scale, unforeseen billings are applicable, being able to exceed the amount of your guarantee deposit. On this point, it is then necessary to check the guarantees of the insurance contract: the contract proposed at the beginning of the LLD is generally a minimum contract (with liability). It is then necessary for the policyholder to take out insurance with extended guarantees.