What is the difference between Loans, Leases, and Rentals?
Loans, leases, and rentals are financial contracts that enable an organization or person to access and use asset(s) without purchasing them. The primary difference is ownership of the asset.
In loans, the borrower takes ownership of the asset. The lender registers a charge on the asset allowing them to take ownership in case of default by the borrower.
In leases, the lessor (financier) retains ownership of the asset. The lessee (borrower) uses the asset for the defined period of time in the contract. At the end of the contract term, generally, there is an option for the lessee to purchase the asset from the lessor. If this option is not exercised, the asset must be returned to the lessor.
In rentals, the renter retains ownership of the asset. The rentee uses the asset for the defined period of time in the contract. At the end of the contract term, the asset must be returned to the renter. There is no option to purchase the asset.
All these forms of lending are applicable in asset classes like automobiles, trucks, construction equipment, etc.
- Term: 12-24 Months | Contract Type: Loan | Ownership: Borrower | Purchase Option: Not Applicable
- Term: 24- 36 Months | Contract Type: Lease | Ownership: Lessor | Purchase Option: Provided
- Term: Less than 6 Months | Contract Type: Rental | Ownership: Renter | Purchase Option: Not Provided
