What is the difference between leasing and renting?

In today's article we are going to study what is the difference between leasing and renting as they are two sources of financing which are similar but with certain differences that influence the financing of the company.

On many occasions, companies, or rather those responsible for the financial department of a company, They do not know all the sources of financing that exist on the market and that can generate great tax advantages.

These tax advantages can generate and ensure that lthe company is more financially agile than the competition, achieving, for example, better price rates or offering better benefits to customers. Therefore, let's see what these two financial products consist of and the differences:

What do Leasing and Renting consist of?

Both leasing and renting are financial instruments intended for companies, whose purpose is the possibility of renting any type of fixed asset, such as machinery, vehicles, property (offices, premises, industrial plants) and intangibles, without the need to make any initial disbursement for the property, simply paying an entry fee and a monthly amount for a period previously agreed upon by both parties.

Both financial tools are usually in demand when a product is required, for de side of the company, which entails very high costs, such as, for example, machinery or high-tech products.

Since this is a contract agreed upon by two parties, in the event of non-compliance by any of these parties it will result in the cancellation of the contract.

Leasing

Leasing is a long-term lease with option to buy. The company undertakes to pay the marked entry fee and a periodic monthly payment before becoming the owner of the product, assuming all the resulting expenses that it entails (taxes, breakdowns...). Sometimes, the company decides to renew the contract leasing with another tangible product (vehicle, machinery, etc.), that is, instead of keeping the asset, start another lease with another product.

Renting

Leasing is a contract to acquire the machinery or vehicle by paying a fixed monthly payment. During this contract, the company that sells the product is responsible for the maintenance costs. Once the rental contract ends, there are usually different options: From returning the property and ending the contract, to starting a new one or even extending the period. If you want to know more, you can learn more on our page renting.

 

What is the difference between leasing and renting?

Even though the purpose of these two financial instruments is the same, Obtaining a non-real estate material asset by paying a monthly fee instead of disbursing the amount at the beginning or requesting a loan, there are several differences between them. Below we are going to break down what these differences consist of.

Recipients

As for the renting, anyone You can benefit from the services of the financial institution, this financial instrument is not only limited to companies or the self-employed. Although the majority of users of these tools are SMEs.

Meanwhile he leasing is particularly intended for companies or self-employed since legally it can only be executed in operations related to goods that can be used in an economic activity by a company.

Purchase option or not at the end of the contract

The big difference between these two financial instruments lies in what happens once the contract ends. In the case of leasing, once the contract agreed between the financial institution and the company has ended, the latter has the option to acquire the asset that has been previously rented.

However, in the case of renting, the final purchase option is not allowed, Therefore, the company must return the product at the end of the contract.

In the case of leasing, the financial institution is obliged to offer the final purchase option that we have talked about.

Charges and expenses

In the case of renting, the entity is responsible for the expenses, maintenance and repair when this derives from daily use of the rented property. Likewise, the entity is responsible for the costs of insurance or any inspections required by the fixed asset.

However, it is the company that is responsible for issues such as fuel or infractions that may be committed by the lessee, in the event that the leased product is a road vehicle.

However, In the case of leasing, the financial institution is only responsible for the acquisition costs, such as VAT, while the company has to face the costs of maintenance and repair of the product.

Advantages of both instruments

The advantages of both leasing and renting are that both financial instruments represent a benefit in tax matters, since the good does not appear in the company's possessions, obtaining as a consequence greater liquidity and a greater debt capacity in turn, if necessary.

We all know that having a good asset financing strategy is vital to the success or otherwise of the company.

Another of the great advantages is the capacity it has the enterprise of changing the good at the end of the contract, which ensures that you always have the most up-to-date machinery on the market and therefore more modern with all the advantages that this entails.

We hope that you have found this article interesting and that we have helped you learn a little more about the different options you have when it comes to owning an asset.