Guide to operational and financial leasing

What are operational and financial leasing?

When talking about business leasing, two things are usually mentioned, operational leasing and financial leasing. But what does that mean and what is the real difference between the two?

Let's start with operational leasing

An operational lease is a bit like a rental agreement. The lessor owns the car and you as a company pay a fee to use it for a certain period of time. The fee includes service, insurance and any repairs.

When an operational leasing agreement expires, you return the car to the lessor and thus avoid taking responsibility for the car's residual value and sale.

Something that is important to be aware of when returning the car is that the lessor may charge you as the lessee for so-called abnormal wear and tear.

So how does financial leasing work?

With financial leasing, the agreement looks a little different. Here you pay a sum every month for a set period of time and with a set residual value.

What exactly does financial leasing mean?

– You pay for the car for a set period of time.

– You are responsible for service, insurance and repairs, just as if you owned the car.

– At the end of the contract period, you can choose to return the car or buy it out for the fixed residual value that was stated at the beginning of the contract. (It may be good to know that if you want to buy out your bonus or company car, there are special tax rules for that)

– In most cases, you can also extend your leasing period if you want.

Who takes the risk? The difference between operational and financial leasing

The big difference between financial and operational leasing lies in the risk distribution – who takes the risk when the car loses value.

In an operational lease, both the risks and benefits of ownership remain with the lessor. If the car wears out and loses value, it is the lessor's risk. With the exception of abnormal wear and tear, which may be charged to you as the lessee.

In a financial leasing agreement, the above is transferred to the lessee, in other words the company. That is, if the car wears out and loses value, it is the lessee's risk, but at the same time it is an advantage if the car's value remains good.

Tip: Discuss with your finance department which leasing form is preferred.