Difference between leasing and renting

Are you just about to invest in a new trailer or truck? Still not sure whether you intend to buy it outright or if you will opt for a financed lease?

You can't decide which solution you should choose?

Here you can find out the similarities and differences between each solution as well as the benefits each of them offer.

 

Leasing:

This financing method allows the company the option of not being the direct legal owner of the truck and/or trailer and, as such, the purchase invoice is not made out in their name.

It's a type of credit instrument that allows the company only to be the beneficial owner of the property by paying a fixed monthly fee. This entitles them to use the property with the option, at the end of the agreement, of purchasing the truck or trailer for up to 15% of the original value.

 

Renting:

Whether it involves a rental or a hire, the company rents a vehicle after signing an agreement with a defined price, term and mileage limits.

Unlike leasing, the company is neither the legal nor beneficial owner of the truck. This is advantageous from an accounting standpoint, as the vehicle does not appear in the balance sheet. Thus, invoices are posted under the company's expenses. A solution that prevents the company from incurring further debt.

Once the agreement ends, there are two options:

Either the agreement is supplemented by a purchase option that amounts to at least 16% of the residual value. The customer assumes the financial responsibility for truck maintenance and risk management. This solution is known as a hire-purchase.

Or there is no purchase option, in which case the truck is returned at the end of the agreement. A solution that includes maintenance, taxes and insurance. As such, the risk management costs are not borne by the customer. This solution is known as an operating lease.

 

Summary:

 

Financial leasing

Hire-purchase

Operating lease

Agreement

 Monthly capitalisation

 Lease with defined price,   mileage and term

 Lease with defined price,   mileage and term

Accounting

 Balance sheet entry:

 Vehicle depreciation

 Income statement entry:

 No increase in debt levels

 Income statement entry:

 No increase in debt levels

Residual value at the end of the agreement

 Maximum 15% of the   original value

 With a purchase option   (minimum 16% of the   amount invested

 Without a purchase option

Risk management

 Assumed by the customer

 Assumed by the customer

 Assumed by Max Rental

Disadvantages

 

 There may be additional   costs if the set mileage   amount is exceeded.

 There may be additional     costs if the set mileage   amount is exceeded.

Benefits

 As no VAT (value-added tax) is applied to pre-financing; the cash savings can   therefore be used for other projects.

 Interest on leasing is tax-   deductible

 A higher amount may be   paid on the first rental   payment in order to   achieve an additional tax   deduction for the current   financial year

 A higher amount may be   paid on the first rental   payment in order to   achieve an additional tax   deduction for the current   financial year

 The agreement may be drawn up based on cash flow (from 18 to 60 months)

 There are flexible repayment options: (monthly, quarterly etc.)

 Max Rental handles most of the administration