What's the difference between leasing and renting?

Leasing or renting? They are two different financing formulas. As you might not clearly understand the difference between one and the other, we are going to explain the keys to these two ways to hire a vehicle long term.

Type of hire agreement

Leasing or a finance lease is a hire contract for a specific period of time, after which you have the option of purchasing or renewing. Although it started out as a financing formula for companies and the self-employed, it is now also available for individuals, giving them the opportunity to renew their contract, hire another vehicle or complete the purchase at the end of the initial contract. That is the main difference between it and renting: the option of purchasing the item when the lease ends. 

Renting is a hire contract for a long period of time. If we focus on vehicles, the renting company will provide a contract containing the characteristics of the vehicle and the agreed terms of service. The agreement usually specifies the maximum annual mileage allowed, the maintenance costs and repairs covered by the contract, and whether a change of tyres is included.  

Costs of renting and leasing

The prices set by renting companies could save the customer between 15% and 20% in comparison with the prices they would otherwise get, thanks to the savings the company makes by purchasing the vehicles. 

These prices are directly related to the services you arrange and your mileage, as a price is set in the contract for non-consumed and excess mileage and the difference is settled at the end of the year. You will normally need to provide a guarantee for the price of one or two months. 

The most basic contract covers vehicle maintenance, official services, repairs, spare parts, taxes and a change of tyres after a certain mileage is reached. 

With leasing, the monthly fee depends on the interest rate applied to the transaction. The company offers each customer a different rate taking into account factors such as solvency, business turnover, guarantees or risk. 

Term: longer for leasing contracts

Current regulations set the minimum term for leasing contracts at two years for movable assets and ten for immovable property. The contracts cannot be terminated during that time. 

Renting contracts are irrevocable but do not provide the same tax benefits as leasing contracts because they are for shorter periods of time. Renting companies usually set a minimum term of 12 months and a maximum of 60 for their contracts, with three or four years being the most usual. 

Leasing: for businesses 

Leasing is a financing formula designed specially for companies. This option provides access to computer equipment, office furniture, machinery, premises and, of course, vehicles. Assets acquired via leasing must be linked to the company's or self-employed person's business activity. 

Benefits include repayments being considered a tax expenditure that can therefore be deducted as long as they are justified as being for the business activity. Another advantage is that you can finance the investment 100%, as the transaction involves less risk than a purchase from a financial institution's perspective.