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What happens to the initial contribution in an LOA?

Le monde automobile 16/08/2021 67

What happens to the initial contribution in an LOA?

LOA: What is the initial intake?

When a motorist takes out a leasing contract, he finances the rental with a consumer loan (also called leasing). The rental contract is concluded for a period ranging from 12 to 60 months. During the entire term of the contract, the tenant will pay monthly installments that correspond to the rent payable for the rental of the vehicle. At the start of the contract, the first month, he must also pay an initial contribution.

At the end of the LOA contract, the lessee can decide to buy the vehicle, in which case he will pay the residual value of the car to become the owner. The residual value corresponds to what the vehicle is worth at the end of the lease contract. It is estimated from the start of the rental contract.

The lessee can also decide not to exercise the purchase option, in which case he returns the vehicle to the financing organization.

The initial contribution paid by the motorist makes it possible to cover the costs incurred by setting up the contract and reduce the amount of monthly payments to be paid. The rents payable include the cost of using the vehicle, its discount and possibly some maintenance costs depending on the options chosen.

The initial contribution is not mandatory and some leasing companies or dealers do not tell you about it. Others speak of “first rent plus”.

The initial contribution: fees returned?

The initial contribution made to obtain a leasing contract is not returned. The leasing contract is linked to a consumer credit so the money is debited directly from your bank account. The contribution is in fact the cost of using the vehicle and the cost of credit.

The larger the contribution at the start of the contract, the lower the amount of rent. This contribution can consist of the sale of an old vehicle or of significant savings. The amount paid is deducted from the financing amount, resulting in a lower cost of monthly payments. At the end of the LOA, the motorist therefore no longer has any contribution to buy back the vehicle because the contribution made previously only concerns the costs related to the rental of the vehicle.

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