Differences Between Financial Leasing and Leasing

Formulas allowing a business or a professional to use equipment without owning it, leasing and financial leasing are leasing operations that connect the business or professional, its supplier and a lessor. Although these two formulas have many similarities, some options differ.

Purchase option for leasing

Purchase option for leasing

As both are long-term equipment leases, the fundamental difference between the two lies in the fact that with a lease, the lessee can subscribe to a call option at the end of the lease. In most cases, the payment of a residual amount equal to 1% of the purchase price is required, but is not mandatory.

For financial leasing, the three stakeholders are just bound by a lease agreement with no option to purchase.

Stakeholders

Stakeholders

Leasing requires the presence of a credit institution in the parties to the contract. This establishment must be accredited by the banking authorities and member of the French Association of Financial Institutions or ASF. The contract is governed by Articles L.313-17 et seq. Of the French Monetary and Financial Code. On the other hand, the financial lease can be exercised by simple companies not approved by the banking authorities. The presence of a financial institution is not mandatory but in most cases, companies use these institutions to act as guarantors. The financial lease is governed by the Commercial Code.

Extension of the contract

Extension of the contract

The lease contract may be extended but must be subject to new terms and conditions to be agreed with all parties, including the lessor. However, when completed, the financial lease may be extended by tacit agreement or according to the terms of the initial contract.

 

 

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