If a client’s considering purchasing a piece of equipment for their business, brokers can help them consider financing options. However, some key differences exist between leasing and borrowing money from a bank.
Leasing vs. Borrowing Money From A Bank
When a broker’s client leases a vehicle, computer, or furniture, they pay a monthly fee to rent the item; they will typically sign a contract that lasts one to three years, during which time they must return the property to the original seller. For example, if a client leases a car for five years, they pay $500 per month for driving around in the car. When the term ends, they will either buy the vehicle outright for whatever price the client paid or return it to the dealership.
On the other hand, when a client borrows money from a bank, they give up ownership of the asset. Instead, a client becomes a “borrower,” and the lender becomes the “lender.” In exchange for the money, they agree to repay the debt over a fixed period, usually 10 or 20 years. This arrangement allows banks to charge interest rates on borrowed funds.
The main benefit of borrowing money from a bank is that they don’t have to worry about returning the asset. While leasing doesn’t offer the same protection against default, it does provide flexibility. Because clients aren’t obligated to buy anything, they can decide whether or not they want to purchase the asset once the lease expires.
And because they do not have to commit to buying anything, they can take advantage of special offers on items a client wouldn’t otherwise qualify for.
In addition, leasing gives a client access to better deals. Many leases allow them to trade in used assets for new ones, while lenders will keep them from doing that. Also, many businesses prefer leasing because it lets them avoid paying sales taxes on the cost of the equipment.