What’s the difference between leasing and renting?

What’s the difference between leasing and renting?

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?

When your company hires or rents cars or other items

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 renting procedure is as follows:

  • The customer orders the company car from the supplier.
  • The customer signs a leasing contract with the leasing company.
  • The leasing company confirms the order with the supplier.
  • The supplier delivers the order to the customer.
  • The supplier invoices the leasing company.
  • The customer pays the leasing fees to the leasing company.

What benefits does leasing or renting offer?

Leasing or renting a car and business equipment
  • 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.

Summary of the differences between leasing and renting

 

Financial leasing

Financial renting

Residual value

Minimum 1%

Maximum 15%

Minimum 16%

Maximum 45%

Services

Not included

Not included

Accounting

treatment

  • On the balance sheet
  • Capitalisation and depreciation
  • On the income statement
  • Booked as expense

What happens when the

contract expires?

  • Return car or
  • Exercise purchase option or
  • Renew the contract
  • Return car or
  • Exercise purchase option
Working capital

No impact

No impact

Benefits

  • Additional credit source
  • Safeguarding working capital
  • Pre-financing of VAT
  • Free choice of supplier
 

Want to learn more about leasing or renting?

As a business owner, you can lease or rent a car with KBC. There are two different lease formulas:

Calculate the difference between KBC Mobile and KBC Touch

In KBC Mobile and KBC Touch, you’ll find a financing proposal tailored to your needs. The rates are clearly stated.In just a couple of clicks, you can compare the types of credit online in KBC Touch.

Compare your financing options in KBC Touch


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.

In KBC Mobile and KBC Touch, you’ll find a financing proposal tailored to your needs. The rates are clearly stated.In just a couple of clicks, you can compare the types of credit online in KBC Mobile.

Compare your financing options in KBC Mobile


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.

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