Difference Between a Loan and a Lease

What is a loan?

A loan is that amount of money which is lent to a borrower by the lender. Here the lender is called the creditor and the borrower is called the debtor. Thus loan is that money which is lent and received in this whole transaction. On the other hand mortgage is a type of loan which is a secured loan with a either a real estate or a personal property.

What is a lease?

A lease is a term which is used to refer to that contractual agreement between the two parties with the help of which one party conveys the assets that can in the form of property, land or services to the other party in return for which they will be getting payments on a regular basis. Any of the property for example the building, vehicles, industrial or even the business equipment’s can be kept on leases. Also one thing to note is that the two parties who are signing on a for a leases, they have to abode by certain terms and conditions with respect to that property that is being kept on leases.

What is the difference between a loan and a leases?

  1. On one hand where the loan can be cancelled a leases is non cancellable.
  2. In a loans, down payments are usually required like the financial restrictions, real estate, additional collaterals, business or personal assets etc. while in leases now of these things are required.
  3. In the case of leases, the owner of the equipment that is being kept on lease can bill for the monthly sales taxes and also the annual property tax. But this is not the cases in loans.
  4. When it comes to lease, the late charges may actually turn to about 5 to 15 percent of the total payment. While in the case of loans it the late charges are kept minimum.
  5. In case of the loans, the cost of the equipment’s is shown in the reports while this is not the same in the case of the leases. In this the equipment cost is not recorded in the reports.
  6. On the loan documents one can find the interest rates that shown clearly. But in the case of leases the interest rates are not shown anywhere on the documents of the leases agreements.
  7. Now in case of the loans, if an individual decides to pay off its loans early, then the amount of the payoff is usually equal to the total principal balance of the loan. But in the case of lease, if an individual decides to leases off early, here the value of the payoff will be equivalent to all of the reaming streams of the payments.

Conclusion

Thus there is quite a lot of difference between both the loans and the leases and one must not confuse between the two.

Anum

Anum Yoon is the founder and editor of Current on Currency. She loves all things personal finance, which is why you'll find her work all over the PF blogosphere.

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