The world revolves around the fact that someone either uses someone’s money at once and pays it or the products of another party to fulfil the need they have. Finance and leasing are two common terms in the department of money management and the techniques under them have been used for a while.
Finance vs Leasing
The main difference between finance and leasing is that they both have different methods of functioning. Finance is the taking of money for one use and paying a small amount every month whereas in leasing the receiver uses the product of the owner and pays each month for the service provider.
Finance is the department that deals with giving out loans and keeps a mortgage for the same. The loan works on a simple process. The loan taker takes a lump sum amount for the needs and pays an instalment to the giver for the number of months that was decided upon. Any delay in the instalment leads to a penalty and a down payment also has to be made.
Leasing is a process of giving the object owned by an owner and giving it on lease to another person for which they have to pay. The payment of the lease or the object is fixed by the owner and after negotiations, it is written on a contract. For example, the lease of the land of a house is 99 years to the government and we pay house tax for it.
Comparison Table Between Finance and Leasing
| Parameters of Comparison | Finance | Leasing |
| Definition | Finance is taking of certain amount that has to be paid shortly by the burrower | Leasing is the process of having a contract between the lessor and lessee for a period. |
| Owner | In finance, the person who pays the money is the owner after the complete payment. | The person who owns the object at the start has the ownership after the contract is terminated. |
| Working | The payment in finance is given in the form of instalments and some amount is given at the start known as a down payment. The instalments include interest. | The payment is divided according to the instalment in the financial lease and in other cases like rent the money payment is decided. |
| Upgrades | Finance is difficult to upgrade according to the technology as the repairs become costly and the warranty runs out. | Leasing is easier to maintain as the lessee can upgrade to new technologies by abiding with the lessor and also they have a warranty. |
| Term and examples | The term of payment in finance depends on the cost and the amount in each instalment. Eg, a loan from a bank. | The leasing is generally for a longer period and the cost is fixed and increases are mentioned in the contract. Eg, house rent. |
What is Finance?
Finance is the term commonly used in the management and marketing departments to check the incoming and outgoing money. Finance in terms of loans is defined as the process of taking a certain amount of money from a person or institute and paying that back within a period.
During the period the amount is divided into smaller divisions which have to be paid monthly, quarterly or yearly depending upon what was fixed between the parties. The small divisions are known as instalments. When the loan is taken a down payment has to be made which ensures that the full payment will be paid and there will be no problems.
The money taken has to be reverted with the interest which is also fixed and compounded annually or quarterly. The taker can also pay a larger part of the amount when he wishes and pay less interest. In absence of the payment for an instalment, a punishment amount is applied as a surplus.
For taking the loan the person had to keep something as collateral. Collateral can be defined as a value that will tend to the money that has to be paid. The risk is of the owner and after the complete clearance, the owner has full access to the item they have paid for. For eg, a house loan.
What is Leasing?
Leasing is the process of giving out an expensive item to a person for which they pay. The payment and all the details are intended in a contract that is made when the lease period starts. Leasing is an easy process and can be easily attained with the help of proper lawsuits.
During the lease period, the responsibility is of the lessor to take care of the property and they are responsible for the technological changes that have to be done. The leasing period can be changed according to the will of the lessor and lessee.
After the leasing period, the contract is renewed and the people decide upon the renewal money. The contract includes everything that has to be maintained and followed. For a house rent, the renter can include rules like no nails, no sowing, etc. It also includes subjects like how the rent will be increased during the period.
The lessor is responsible for the risks that have to be taken by it the natural calamities. The conditions also have to be taken into consideration and it is mostly for a longer period. For eg, the lease of land by the government is 99 years and after that, it has to be renewed. For every year you have to pay the house loans.
Main Differences Between Finance and Leasing
- Finance is taking of a certain amount that has to be paid shortly by the burrower whereas leasing is the process of having a contract between the lessor and lessee for a period.
- In finance, the person who pays the money is the owner after the complete payment whereas the person who owns the object at the start has the ownership after the contract is terminated.
- The payment in finance is given in the form of instalments and some amount is given at the start known as a down payment. The instalments include interest. In comparison to this, the payment is divided according to the instalment in the financial lease and in other cases like rent the money payment is decided.
- Finance is difficult to upgrade according to the technology as the repairs become costly and warranty runs out whereas leasing is easier to maintain as the lessee can upgrade to new technologies by abiding with the lessor and also they have a warranty.
- The term of payment in finance depends on the cost and the amount in each instalment. For example, a loan from a bank. In comparison, the leasing is generally for a longer period and the cost is fixed and increases are mentioned in the contract. For example, house rent.
Conclusion
Finance and leasing have been there in the market for a very long time. People use the words interchangeably but there is a major difference between them. Finance is the way of taking the money from an institute that has to be paid back within a certain amount of time with the help of instalments whereas leasing is done by a lessor who provides the items and the lessee has to pay the money for the same either monthly or quarterly or yearly. In finance, after the payment is done the item is your credential whereas in leaser the acquired item goes back to the owner.
References
- https://www.store.leasefoundation.org/cvweb/Portals/ELFA-LEASE/Documents/Products/JELFSpring15_Wendel.pdf
- https://www.econstor.eu/handle/10419/176645