Difference between Finance and Lease
|
Basis |
Finance |
Lease |
|---|---|---|
|
Meaning |
Finance is the process of obtaining funds, usually through borrowings or investing. |
A lease is a legally binding contract between a landlord and a tenant granting the tenant, the right to use a property for a predetermined time period in exchange for a consideration. |
|
Ownership of Asset |
Once the loan is fully repaid, the borrower is the owner of the asset. |
The lessor remains the owner of the asset, during and after the lease, unless a buyout option is exercised. |
|
Payment Structure |
It involves monthly installments with interest payments. |
It involves monthly lease payments. |
|
Responsibility for Maintenance and Insurance |
The borrower is responsible for maintenance and insurance. |
The responsibility of maintenance and insurance lies with lessor or lessee, depending on the lease agreement. |
|
Tax Treatment |
Depreciation and interest payments may be eligible for tax benefits. |
Lease payments may be treated as operating expenses and deductible for tax purposes. |
|
Flexibility |
It involves limited flexibility during loan term. |
There is flexibility to upgrade or replace assets more frequently. |
|
End of Term Options |
Ownership of the asset after loan repayment. |
Options to return the asset, renew the lease, or purchase the asset at a pre-determined price (buyout). |
Difference between Finance and Lease
Finance and Lease are two different methods of acquiring assets, such as vehicles, equipment, or property. Finance is the process of obtaining funds, usually through borrowings or investing; whereas, Lease is an agreement in which the lessor gives the lessee, possession of his assets for a predetermined time period (not for periodic payments), where the responsibility of maintaining the property is with the lessee.
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