While many Lebanese can’t afford to pay $80,000 in cash for a brand new luxury car, they will consider spending $12,000 on an initial down payment and $1,000 in monthly interest payments. But for those who dream of luxury driving but can’t afford the car, leasing is making dreams a reality in Lebanon.
Leases and common purchase loans offered by car dealerships and banks in Lebanon are two different methods of automobile financing. Leasing is like renting with the option to buy at a reduced price after the lease period ends.
When a client buys a vehicle with a loan, he pays for it by making a down payment and a monthly interest payment. When a client leases, his payment covers the expense of using the vehicle, along with a finance charge. At the end of the leasing period, clients can either return the car or purchase it for the price of a used car.
Leasing has now existed in Lebanon for over a decade, essentially in three forms: equipment leasing, car leasing offered by banks to rentals, and car leasing offered by car rentals to private companies.
“We have been leasing since 1995 equipment to the industrial sector, such as trucks, cars or mixers, as well as medical equipment to hospitals,” says Nadine Nehme, head of business development at the Lebanese Leasing Company, a subsidiary of Fransabank. Leasing to the industrial sector is subsidized in certain cases like agricultural or new technology companies. The Lebanese Central Bank reimburses part of the interest, typically the portion added on top of the London Interbank Rate (LIBOR).
“This particular type of leasing usually stretches over a five to seven year time period, after which, companies can buy the leased equipment for 1 percent of its cost,” says Nehme.
Fleet leasing
The Lebanese Leasing Company also offers this particular service for car rental companies in Lebanon.
“Our only restriction is that the minimum value of each deal should amount to $200,000,” says Nehme, who adds that the company offers only financial leases, which oblige clients to purchase the equipment or vehicles at the end of the lease period.
“When it comes to car leasing, companies are bound by the contract to buy brand new vehicles,” she says. “They also need to disburse 20 percent of the cost of the fleet.”
Farid Homsi, general manager at Impex dealers of Chevrolet, Hummer, Cadillac and Isuzu, says that car leasing has grown significantly in recent years.
“We have noticed, however, that many rentals we work with require mostly small vehicles for their fleet,” he adds.
Rania Chamoun Kashar, sales and lease manager at Hala Rent-a-Car, explains that she provides leasing to private Lebanese companies who require large sales fleets.
“We have been providing this service since 1994, and we are currently leasing out over 600 cars to Lebanese companies. Our clients include brand names such as pharmaceutical company Sanofi-Aventis, Obegi and Benta trading,” she adds.
Vehicles are typically leased out for a period of 3 years, after which they will be returned and exchanged for a new car. The main advantage to this service is that clients do not need to worry about paying registration, insurance fees or service and maintenance. Cars are also immediately replaced in case of accident.
“This makes leasing a hassle-free experience,” points out Kashar, who adds that, nonetheless, some will perceive this service as somewhat expensive, particularly due to the fact that companies, under this contract, do not have the option to buy the vehicle at the end of the leasing period.
Monthly payments for car leasing at Hala varies between $350 to $7,000, the latter being the price paid monthly for a Bentley by one exclusive Beirut hotel.
Kashar underlines that Hala used to offer leasing to private individuals in 2002, but had to interrupt the service due to clients generally defaulting on payments after a few months. “Clients used the cars for a few months before abandoning them and we had no legal means to pursue them,” she explains.
The personal touch
But one company does risk leasiung cars to private individuals.
“We started leasing cars to VIP clients in 2004 and noticed that there was a growing demand for the product, one that was taking shape gradually,” says Nada Ayoub, head of finance, budget and treasury at Rymco, the dealers of Nissan, Infiniti, GMC and Kawasaki.
“We have realized that awareness for car leasing is becoming more significant as more Lebanese expats, who have been familiarized with the concept in the west or the Gulf, return to Lebanon,” she says.
Ayoub believes that more luxury cars will be bought on lease deals instead of being bought outright, partly because buyers want to experience luxury for a lesser cost, or prefer to use their spare money for other investments. Then again, luxury cars retain higher residual values, making lease arrangements an interesting option.
“Clients can sell their used car after a three-year period, usually for a higher price than the balloon payment [the payment that purchases a vehicle at the end of a lease] they end up settling for, which facilitates the reimbursement of the final payment,” she explains.
She adds that the main leasing advantages at Rymco are that the car is registered in the client’s name and comes with insurance coverage that includes the replacement of the vehicle in case of accident, as well as a maintenance contract for up to 60,000 kilometers.
“Clients can save 50 percent on monthly payments compared to regular financing plans,” she adds.
At Rymco, clients are selected by the company’s credit department, on a case-by-case basis. They are also given, at the end of the three year period, the choice to refinance their balloon payment for another three year period, pay the balloon payments and purchase the car, or finally return the car to Rymco with no further obligation.
