Difference Between Lease and Buy

Difference Between Lease and Buy

What’s the difference between lease and buy? This is one of the many questions people are asking today. To be clear, the disparities between the two terms are just miles apart. It should be noted that these are terms that are commonly used in the business world. Are you one of those who still struggle to understand the difference between lease and buy? If so, you are reading the right article because we will guide you through the differences between the two, thus helping you to figure out the clear distinction. But just before we get into their disparities, let’s define them separately.

Definition of Lease

An asset is said to be on lease when it has been given to someone to use for a duration and under certain terms and conditions. This means that the original owner will give the property to another party to enjoy it for a certain time, after which the beneficiary is expected to return the property in good condition.

In addition to property, other things that can be used in this contract include services, land, cars, industrial equipment, etc. Almost anything can be used in this contractual agreement.

Often, this agreement has some financial implications. This means that the party who will enjoy the item will have to pay for it before he or she is allowed to have it. While the owner is called the lessor, the user is called the lessee. Another similar term is rent. However, the disparity between the two agreements is that rent is always for a shorter duration.

At the time the lessee is enjoying the item, it is assumed that he or she is the real owner. Therefore, it is the lessee’s responsibility to ensure that the item remains safe and undamaged. If it is damaged before the expiration of the contract, the parties usually agree on who pays for the repair costs.

Definition of Buy

On the other hand, buying an asset means that a transaction has taken place between two parties. Another word for it is purchase, meaning that something has been exchanged between two parties. Before the contract is signed, certain terms and conditions must be met. Most of the time, this transaction involves someone paying for goods, property, machinery, equipment, services or anything else.

There are certain cases where purchases involve the transfer of an item of almost equal value between two parties without financial involvement. This is called barter trade. The Internet has made possible a type of purchase where payments are made electronically, e-payments. Essentially, the original owner is the seller while the new owner is the buyer.

At this point, you may begin to wonder: What is the difference between buy and lease? Well, the table below will give you more insight into the subject.

Lease vs Buy Comparison Table

The table below gives you a better understanding of the difference between buying and leasing an asset.    

Basis of ComparisonLease Buy
Meaning Transfer of an asset to a party to use within a given period of time Transfer of asset from one party to another without any plans that the beneficiary will return it
Names of Parties involved Lessee and lessor  Buyer (purchaser) and Seller
Ownership period It could be between 5-20 years Forever (limitless)
Items involved Equipment, machinery, land and service It could be anything
Simplicity of contract Always complicated with terms and conditions and paperwork Usually simple. In some cases, there are no written agreements  
Amount involved Involves less amount spread over a period of time Involves a lot of money, which could either be spread over time or one-off payment

Conclusion of the Main Difference Between Lease vs Buy

At this point, when you see: “What is the difference between lease and buy?” you’ll have no problem enlightening anyone who wants to know more about it. Indeed, we have taken some time to explain in detail the difference between leasing and buying. Keep in mind that many people or companies would like to acquire a property or industrial equipment.

However, when they run a cost-benefit analysis of purchasing that, leasing may be a better alternative. Since most for-profit companies need to keep increasing their revenues, they would rather settle for leasing when they realize it is better than buying.

In addition, firms may settle for leasing rather than buying when certain assets are not included in their budget. For instance, an important piece of machinery has been damaged beyond repair, and the firm will have to contact a leasing firm rather than a seller.