When they hear the terms ‘leasing’ or ‘renting’, most business owners immediately think of company cars. Unfortunately, these terms are often confused with one another. However, these two forms of financing are different, particularly from an accounting perspective. Let us walk you through it.
What is leasing?
Leasing is a form of credit whereby a leasing company, such as KBC, purchases a company car and makes it available to your company.
- The leasing company is the legal owner of the company car, as it’s their name that’s listed on the purchase invoice.
- Your company is the economic owner, which means you have the right of use of the company car. However, the car is listed on your company’s balance sheet, which increases the debt ratio.
During the term of the leasing contract, you pay a leasing fee (including interest) for the right of use. When the contract expires, you may purchase your company car, provided you are prepared to pay the transfer price, which is a maximum of 15%.
What is renting?
Renting is when your company rents a company car from the leasing company subject to a predefined term, number of kilometres and price. In this case, the leasing company is both the legal and economic owner, which means that the lessor (= the leasing company) remains the owner of the car. The car is therefore not listed on your company’s balance sheet. Consequently, the debt ratio remains the same. The monthly invoices are classed as expenses. When the contract expires, you are given a purchase option of at least 16%.
In summary, the procedure for renting and leasing is as follows:
- The customer orders the company car from the supplier.
- The customer signs a leasing/renting contract with the leasing/rental company.
- The leasing/rental company confirms the order with the supplier.
- The supplier delivers the order to the customer.
- The supplier invoices the leasing/rental company.
- The customer pays the leasing/rental fees to the leasing/rental company.
Summary of the differences between leasing and renting
|Financial leasing||Financial renting|
|Services||Not included||Not included|
|What happens when
the contract expires?
|Working capital||No impact||No impact|
What benefits does leasing or renting offer?
- No extra security needed. The leasing company is the legal owner of the company car you are using, while the car itself is security.
- Use your own funds for other purposes. Free up resources by not having to fund the purchase yourself. This way, you can invest in other things.
- Reduced administration. The leasing company purchases the car. The leasing company takes care of the administration in relation to the purchase, including payment of advances.
- High or low repayments? You can opt for a low or high residual value; in other words, high or low repayments.
- Never pay too much VAT. The leasing company pays the full invoice amount (including VAT) to the supplier. For instance, the VAT is prepaid at no charge, and your company doesn’t need to wait for reimbursement, if applicable. VAT is never charged based on the full amount; it’s proportional to your enjoyment of the car.
- You choose the supplier. You negotiate the purchase of the car with the supplier. KBC purchases the car from the supplier of your choice.
Want to learn more about leasing or renting?
Work out the difference
You'll find a financing proposal tailored to your needs in KBC Mobile, KBC Touch and theKBC Business Dashboard. The rates are clearly stated. All it takes is a couple of taps or clicks to compare your financing options online.
If you’d like to lease or rent other movable assets, such as equipment or machinery, be sure to contact the experts of KBC Live.