Surely on some occasion you have gone on a trip and decided to rent a car to get around. You may also have considered the option of starting a cab business without a car, such as renting or leasing a car for use at work. You may even live in a house or apartment that you are renting.
As you can see, renting or leasing property is becoming more and more common in everyday life. This is why you probably know the terms “leasing” and “renting”. However, do you know what they really mean? Do you know the differences between the two? If not, don’t worry. Here we will explain how to differentiate between leasing and renting.
The main differences are in the terms and conditions of the contract, as well as in the type of goods you can rent or lease. We will detail it for you:
Main differences between leasing and renting
1. Who can make a leasing contract?
One of the main differences is that not everyone can use the leasing process to enjoy an asset. This means that only legal entities such as businesses and companies can lease under leasing concepts.
So, for example, if you have decided to start your cab business and rely on leasing, you should have registered your company first. And then, lease the car to start working. Remember, the leasing contract will be made in the name of your business.
In the meantime, anyone can have access to a rental property. You do not need to have a registered company to sign a lease contract. The contract will even be in your name.
2. Option to buy
The main difference between leasing and renting is the option to buy. When a contract is terminated by leasing, the company that has been enjoying the leased asset has the option to purchase it. However, if a person has been enjoying an asset through a leasing contract, at the end of the duration of the contract, that person must hand over the asset.
This is a great advantage for companies. For example, a company may need to acquire cars in order to fulfill its economic activity. The company can lease cars through leasing in order to start producing and generating the income with which it will pay the cost of the cars. Thus, at the end of the contract, the company will own the cars it has been using.
3. Duration of the contract
Contract lengths vary. However, rental contracts are for a relatively short period of time. There are contracts for renting that last six months, even. At most, a renting contract has a duration of five years.
On the other hand, leasing contracts last much longer. A lease contract will never last more than a few months. The minimum duration of a lease contract is often two or three years. You can even find contracts with a duration of at least ten years. The latter is the case when it comes to real estate, such as buildings.
4. Additional costs
If you are enjoying an asset through a rental contract, you will most likely only have to pay the cost of the rent. Any maintenance or repair costs will be paid by the person or company that is renting the property to you. Remember that at the end of the rental contract, the property will not belong to you, so it is in the owner’s interest to keep the property in good condition.
On the other hand, if the good is leased out through a lease contract, it is likely that the company that is enjoying the good will have to cover some additional costs. Especially when considering the option to buy. These costs stem from the need of the future owner of the good to maintain the good in good condition.
It couldn’t be simpler. We hope that with this simple explanation of the main differences between renting and leasing, you will be clear about which terms are more convenient for you or your company.