What is the difference between leasing and financing?

Want to know what the difference is between leasing and financing? You are not the first to ask yourself this question, because apparently the two contractual forms are very similar. Both can be used to obtain the exploitation of an asset instrumental to one’s profession, such as a vehicle, and provide for a periodic payment by the applicant. However, there are very important distinctions that affect, at the end of the contract, how to access the property of the property.

Let’s start by describing the perhaps less known contract, that of leasing

leasing

. Leasing, also known as financial leasing , provides that the applicant (a company, a professional, a public administration) is entitled to use an asset, such as a car, in exchange for paying a periodic fee. Usually, the first payment will be more substantial than the subsequent ones, because it will serve to guarantee the leasing company (called the grantor) on possible losses. The particularity of the lease is given by the fact that at the end of the contract the applicant, or user, can become the owner of the property, paying a predetermined amount, lower than the market value. The grantor, meanwhile, had proceeded to purchase the asset from the producer (the supplier).

The differences with simple financing are clear

financing money

The loan, especially in the case of personal loans , requires that the consumer undertakes to repay the capital provided by the bank in accordance with the contract, regardless of the use made of the amount. The consumer becomes the owner of the asset (if he has borrowed the money to buy something, it is obviously not mandatory) right away.
Greater confusion can create the case of a finalized loan

Consider the case of a car loan compared to the leasing of a vehicle: in both cases, the money spent is linked to the use of a vehicle, however, with the lease, the purchase can be concluded only at the end of the contract, while the loan allows you to immediately become the car owner, in the face of the commitment to repay the debt. However, leasing does not require purchase, therefore, if the rent has been paid regularly, no debts are accrued.

Knowing then what is the difference between leasing and financing helps to choose the best solution for the use and purchase of an asset, such as a vehicle.