Type of Change

Loan

Lease

The role/nature of the user

Borrower

Lender

The role/description of the provider

Lender

Lessor

What is given to the user

Money

The equipment itself, e.g., if the user wanted a loan to buy a car, the lessor would provide the car itself.

Nature of the Provider's security

Charge/lien over the asset

Ownership of the asset

Nature of payments made by the user

Repayment of loan + Interest on loan

Lease rentals

Length of use by user

Forever.

For the period of lease, subject to end-of-term options

Applicable law

Loan-related laws

Asset-hiring related laws - treated as bailment of a commodity

Rights of Lessor over the asset

Rights as per security/lien agreement, a derivative right

Absolute property rights - repossessory rights normally available without intervention of judiciary

Tax consequences for provider

Tax payable on interest earned

Tax payable on rentals earned; capital allowances (depreciation) allowable on asset (in some countries, this is subject to true lease conditions)

Tax consequences for user

Tax deduction admissible on interest; depreciation claimable on asset owned

Lease payments (rentals) deductible for tax purposes (in some countries, this is subject to true lease conditions)

Accounting for the asset

The asset sits on the user Balance-Sheet

The asset appears in the provider's balance sheet (subject to accounting standards on leasing)

Accounting for the liability

Loan liabilities appear on the balance sheet

Lease liabilities are periodic liabilities, may be Off-the-Balance-Sheet (subject to accounting standards on leasing)