What is the difference between leasing and renting?

Companies can find themselves with various options when purchasing goods and / or services, necessarily the best option should not be to purchase these, leasing and renting They are alternative methods that allow making use of a good or service and even buying it, once the contract is finished.

Many people often hear about these terms, but are not sure what they are about, when they are applied and what are the main differences between one and the other.

The popularity of these is growing by leaps and bounds, today they are options that offer multiple advantages, which make them so attractive for companies according to their needs and specific objectives. At first glance, there seem to be more similarities than differences, but little by little it is being discovered that they are two quite dissimilar options.

What is leasing?

Known as financial leasing, the purpose of which is the purchase of a good, a financial entity makes the purchase for the client, who undertakes to return the money in fixed monthly installments, at the end of the contract.

The goods contracted in principle are the property of said entity, which guarantees the leasing, once the client complies with the entire payment, the asset is released and becomes the property of the lessee.

In clear words, leasing is an installment purchase.

What is renting?

It consists of a long-term property rental contract, through a fixed monthly, quarterly or annual fee, at the end of said contract, different options are presented that include the extension or renewal of the contract, make the return of the good or buy.

Main differences between Leasing and renting

Duration

• Leasing: According to current regulations, these leasing contracts have a minimum duration of 2 years, with no option to be canceled until after this period, that is, it requires specific terms.
• Renting: They are more flexible contracts, with a duration of 1 and 5 years, however, it does not derive any legal limitation in this regard.

Purpose

• Leasing: It is aimed at the purchase and final possession of the property, so that from the beginning in the contract, the purchase option is reflected at the end of it.
• Renting: The purchase option does not appear in this contract, however the client has the option of paying the residual price to become the owner of the property.

Accounting

• Leasing: Supports the mobilization of various accounts (liabilities and assets) for the amount of debt, deferred expenses and immobilization of material, that is, as contemplated from the beginning The property of the asset is recorded as an asset, charged as a right to assets under a financial lease, and the corresponding debt is charged separately in the passive.
• Renting: Considered an expense for installments, it is counted as an expense with a single entry month by month, charging a full installment to the expense account for leasing.

Services they offer

• Leasing: Avista lower fees, since it does not contemplate additional conditions of maintenance, repair, among others, except in certain specific cases.
• Renting: See higher fees, as it contemplates additional advantages such as maintenance, payment of taxes, registration, minor repairs, compulsory insurance and others that have been established in the contract.

Who is it for?

• Leasing: It is a resource that can be used only by companies and freelancers, that is, it is used by companies in operations of goods used in the development of their economic activity, with leasing some companies get financing for a car under favorable conditions in terms of terms prosecutors.
• Renting: The renting contract is a resource that can be used by ordinary individuals or individuals and companies.

End of your contract

• Leasing: at the end of the contract term, the following possibilities are presented in leasing:
• Return of the property.
• Extension of the contract.
• Make the purchase option effective.
• Renting: At the end of the renting contract, the following possibilities are presented:
• Return of the property.
• Extension of the duration of the contract.

To conclude, it is important to note that leasing and renting are options that only apply to new goods, this type of contract being very common in the automobile market.

Regarding leasing, there is an excessive growth, as companies have opted for this strategy before think about the definitive purchase of goods, especially if you think about obsolescence, devaluation and depreciation. As equipment, machinery, vehicles and technology lose their value year after year.

Also currently hundreds of companies in the world save with leasing contracts, allowing them to focus mainly on the development of its economic activity, safeguarding other assets and with the possibility of renewing the equipment whenever necessary without having to make a investment as huge as the final purchase would be, in addition to the ease of installation, insurance, maintenance, repair and others.