Daniel Duque
By: daniel_duque
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Lease vs. loan: choose the right one for you

Learn what the differences are between lease vs. loan. We will help you clear up any questions you might have so you can choose the funding that best suits you.

If your business is in its growing stage, this question will arrive sooner or later. It’s a decision that almost every single business owner has had to make at some point.

Lease vs. Loan: Differences Between Them

Between a loan vs. lease are differences and similarities. Some of them are:

lease vs loan venn diagram


What is a Loan?

A loan is a financial product that allows you to borrow money: it may be either a personal loan or a commercial loan.

When choosing between lease vs. loan, you should understand that you receive a lump sum of cash when it comes to loans.

The financial entity is the lender, and those who take a loan are the borrowers, debtors, or lenders.

Some lenders allow you to spend personal loans in almost any way you want.


loan icon

Types of Loans

There are different types of loan products that you can choose from. Secured and unsecured loans are the main types.

  • On the one hand, secured loans require some type of collateral (it can be an asset, such as a vehicle or a piece of equipment, or even the asset you will purchase).
  • On the other, unsecured loans do not require any collateral.


If you take a secured loan and the collateral is your home, then it’s called a mortgage loan.

Common Uses for a Loan

People take out a loan to buy particular assets that might not be available to lease. A loan is a better option if you intend to use the assets for all its durable life. 

The thing about loans is that it’s more versatile: you can use them to buy the asset and to invest in many other things: like consolidate debt, invest in marketing, strengthen your cash flow, and more.

business loan application

How Do You Know if a Loan Is Right for You?

When choosing if a loan is right for you, you must think about how much it would cost you not to acquire a loan or to miss the opportunity it provides.

Also, the loan term, monthly cost, how much you will be paying interest, and other factors.

Let me explain with an example:

For example, if you are looking for heavy equipment financing and decide on a loan, you need to as yourself the following questions:

  • How much would it cost your business if you didn’t have this piece of equipment?
  • How much would this alternative means of production cost?
  • Are there even other alternatives out there?

If the cost of these other alternatives or processes is higher than the total cost of the monthly loan payment, you should definitely apply for the loan.

The truth is that, in the finance lease vs. loan debate, it all depends on which option is cheaper.

signo de dólares

Pros of Loans

Loans can be an excellent option. Here’s a list of the benefits of getting a loan:

  • They allow you to make purchases or investments you wouldn’t be able to make otherwise
  • They offer a lot of flexibility: both to purchase machinery or equipment, to improve your cash flow, or to make other investments
  • They can help you get out of financial emergencies
  • Financial institutions can offer you personalized financial advice
  • They are a good way of improving your credit score due to lower monthly payments.

If you are going to use a loan to make the down payment of machinery or vehicles, compare the interest rates to the depreciation rate of the assets you will acquire.

Cons of Loans

However, loans have some disadvantages, too:

  • Some lenders offer secured loans, which means that you will need collateral to secure them
  • Generally, you should take into account that you will have to pay interest rates and other fees
  • You must strictly meet the payment dates of your monthly payment so that your credit score is not affected

If you’re looking for flexible, easy to acquire loans with low-interest rates and a fixed monthly payment (and no need to pledge collateral), apply for a loan from Camino Financial.

Get Approved For A Loan Today

Keep reading to learn more about leasing.

lease agreement

What is Leasing?

A lease is a contract that allows you to use an asset in exchange for a monthly fee without a down payment.

In leasing, the protagonist of the transaction is an asset (it can be machinery, equipment, or even a building) and not cash (like with a loan).

The parties involved in a leasing agreement are:

  • the financial institution, which is the owner of the asset, they’re called the lessor
  • the person that wants to use the asset called the lessee

The lease lender makes the payment to be able to operate or use the asset. For example, a car lease allows you to use a car, for example, without owning it.

The contract will determine the lease terms, the lease period, and the amount of the lease payments (which have the interest rate included). Usually, the month’s payment is usually not very high.

Leasing is a financial tool broadly used in the business world.

An auto lease is one of the most common types of lease. Take into consideration that the contract might have mileage limits.

What Leasing is Not

You should not confuse leasing with a renting contract or an installment sale.

  • Leasing is not renting because it’s more long-term.
  • A lease is not an installment sale because the financial institution has ownership of the asset.

Common Uses for a Lease

People take out a lease when they need to use assets (like a piece of machinery) that financial institutions offer. A lease is a better option if you intend to use the asset just for a short period.

Construction workers may lease heavy equipment and trucks, while a business owner may lease office equipment and furniture.

Types of Leases and their Pros and Cons

This leads us to another essential aspect of the lease contract. There are two types of leasing, financial and operating.

financial lease icon

Financial Lease

Financial leasing is when the lease contract includes purchasing the asset when the lease period ends.

The most important characteristic of financial leasing given by a leasing company is that the asset will become yours once you purchase it at the end of the contract.

Pros of a financial lease:

  • You don’t have to make a down payment, but you have lease payments.
  • You don’t make principal payments like with a loan
  • It does not affect your creditworthiness
  • You have the option to buy

Cons of a financial lease:

  • You can only be the owner of the asset until the end of the contract
  • When the asset is yours, you will have to pay taxes
  • It can be more expensive than other financing options
  • You may have to purchase insurance
  • You might only be able to access the assets that the bank or financial institution chose

operating lease icon

Operating Lease

An operating lease is when if the lease does not include the option to purchase the asset.

The asset never will not be the property of the financial institution with an operating lease.

Pros of an operating lease:

  • Maintenance or tax costs are not your responsibility
  • The asset depreciation rate does not affect your books
  • You avoid buying assets that have a quick devaluation or are difficult to sell
  • It’s great if you only want to use the asset for a short period

Cons of an operating lease:

  • You cannot return the asset until the contract ends
  • It may be more expensive than buying the asset with monthly loan payments
  • You might also have to get an insurance
  • It is not cash that you can invest in any way you can

How to Choose Between Lease and Loan

Making this decision will depend on how you will use the asset you want to buy:

Getting a loan to buy something means you own it and can use it until the end of its usable life. You pay for upkeep and any taxes you owe on the property, though. You can modify the property to your liking and even sell it if you choose. 

If you lease property, you don’t own it but pay for the privilege of using it for a certain amount of time. If you want to end the lease agreement early, you will typically pay fees for terminating the contract. 

Depending on the agreement, either you or the lessor will pay for its taxes and maintenance.

business owner in front of a piece of equipment

What is Better? Lease vs. Loan

Identifying the real difference between lease and finance may be a tricky situation.

You should know that leases and loans are not your only alternatives. You could use personal savings, your credit card, or get a mortgage. But in all honestly, out of all the options, there’s one that’s superior.

Loans are the best option for most people, even with monthly payments.

Sometimes, the lease payments vs. loan payments will be the same, so a loan could be a better option: you will make the same monthly payments and will end up owning the asset.

At Camino Financial, we are always looking for ways to help the business community grow and prosper. That is why we offer loans to people without a credit history that adapt to their needs.

camino financial logo

We have minimum requirements that will allow you to get the loan you need in less than two days:

  • If you don’t have an SSN, you can apply with your ITIN
  • You can complete our paperless application online, anytime, anywhere
  • Applying will not hurt your credit score because we use a soft pull
  • We have both business and personal financing options

Our loans have helped thousands of business owners like yourself create a stronger and brighter future.

Apply today with low monthly payments!

Apply For A Loan!


FAQ On Lease vs. Loan

Is a Lease Considered a Loan?

It’s often confusing these terms, so no, you borrow money from a financial institution when you ask for a loan. In a lease contract, you sign it to lease it an asset.

What is a Leaser?

This term refers to an entity that is in charge of renting something.

What is the Difference Between Leasing and Financing

In a lease, the property belongs to financial entities up to the end of the contract. With financing, you must repay the money in full in funding. With that, you have to pay the entire purchase price of an asset, and with a lease, you don’t have an obligation to become an owner.

For example, for a car leasing, the vehicle must be paid in a monthly lease payment, but if you get an auto loan, the car will be yours!

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