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Differences Between Leasing and Credit

Updated on August 20, 2011

Differences between leasing and credit

The practical interest of leasing is to ensure the entire financing through borrowed funds for an investment, without any necessity for the user to take other insuring measures. This is the main feature that makes the difference between leasing and the traditional credit, where the user-company bears a part of the investment value.

Therefore, leasing as a financing technique is mainly developed for companies that seek to enlarge their activity and improve their performances, and more generally speaking, it ensures technical progress.

Comparison between Leasing and Credit

The following compares the two financing options:


Leasing:

  • Ensures the investment's financing
  • No material collaterals are usually requested
  • Because the leasing contract is a renting contract for a certain good over a period of time, the user doesn't appear with liabilities to banks, so the financial statements don't show these liabilities, and therefore the company's trustworthiness is not affected.
  • The duty fees are paid at the residual value
  • The fiscal deduction of some expenses.

Credit

  • Ensures the investment's financing
  • Supplementary expenses related to collaterals and insuring them (pawns, mortgages)
  • The financial statements show liabilities to the crediting bank.Supplementary expenses related to the credit commission, the monthly margin.
  • The duty fees are paid at the entire value of the good.
  • Equal expenses to the ones made for financing under a leasing system, but without the possibility of fiscal deduction except for the costs of the credit, not for the monthly installment

Read about advantages and disadvantages of leasing.

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    • profile image

      sakesare 5 years ago

      Great and comprehensive information here. Thanks for sharing..

    • SpiritLeo profile image
      Author

      SpiritLeo 5 years ago from Europe

      Thank you Sakesare! I am glad it was useful for you!

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