Lease vs. Finance: What’s the Difference?
The main difference between leasing and financing is that leasing involves renting an asset for a specific period whereas financing involves purchasing the asset through installment payments.
Before we move to more differences, let’s first understand Lease and Finance:
- Lease: Leasing is a contractual arrangement in which the lessee (the person or business acquiring the asset) pays regular payments to the lessor (the owner or leasing company) in exchange for the right to use the asset for a predetermined period.
- Finance: Financing, also known as buying or purchasing on credit, involves obtaining ownership of an asset by making regular installment payments over a specific period.
Now, let’s get to Lease vs Finance:
Major differences between Lease and Finance
| Lease | Finance |
|---|---|
| Lease payments typically cover the depreciation and use of the asset. | Financing payments contribute to the purchase price of the asset. |
| Leasing offers flexibility at the end of the lease term, allowing the lessee to return the asset or potentially purchase it. | Financing provides the flexibility to customize the asset or sell it at any time. |
| Lease payments are often tax-deductible as business expenses. | Financing may offer tax benefits related to depreciation and interest payments. |
| In a lease, the ownership of the asset remains with the lessor. | In finance, the borrower owns the asset. |
| In a lease, the lessor is responsible for maintenance and repairs of the asset | In finance, the borrower assumes responsibility for upkeep and repairs. |
So, these are the main differences between the entities.
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