Posted By 
By Sia Hasan
Special to the Financial Independence Hub
The terms “lease” and “loan” are often used in conversations about personal finance, and you may not be sure of the difference between them. You may have even less confidence about when you should take out a loan, lease an item or just buy whatever you need out of pocket. By finding out the differences between these options, you can figure out which choice is best for your situation.
Loan
A loan is an amount of money that you borrow from a bank or another financial group. They give you the money and you agree to pay it back over time, almost always with interest. A loan is right for you if you need to make a payment on something that you cannot afford all at once or that involves education or another kind of service.
Within this broad term are many specific kinds of loans. Loans can be classified as secured or unsecured based on whether the recipient has to provide a piece of property for collateral. Loans can also be closed or open. If a loan is closed, the person borrows a certain amount of money and then pays it back without taking out more money from the same lender in the process. Student and mortgage loans are often closed. If a loan is open, the person can continue to borrow more money from the same lender. Credit cards are a common type of open loan.
Another type of loan is a solar loan. If you want solar panels but cannot afford to buy them flat-out, you can borrow money that is specifically for your solar panels. When you take out this kind of loan, you can have solar panels installed without having to have all the money necessary to purchase them flat-out. Using this kind of loan does not prevent you from participating in any incentive program the government creates to promote reusable energy. All you have to do is remember to make your monthly payments so that eventually you can own your solar panels without having to repay the money you initially borrowed.
Lease
While loans involve one party lending money to another, leases involve a lending of possessions between two people. One person gives another a certain sum of money and in return, he or she receives the right to use a piece of property. Farmers may lease equipment from larger corporations that own their land. If you have rented an apartment or another dwelling place owned by a landlord, you have participated in a lease before. Leases are less open-ended than loans because they cannot be used to pay for any expense but instead involve a specific piece of property.
You may consider getting a lease if you are in need of a certain piece of equipment or a tangible possession and you do not have the money to buy it right away. A lease also works well for something you only need for a small amount of time rather than regularly. For example, if you own a farm, you may want to lease a hay baler rather than owning it since you only need one during the harvest. As with any legal document, read the contract carefully before signing it. You do not want to miss any important conditions about the operation of the equipment.
Buy
With loans and leases available to help you obtain the goods and services you need, you may ask why you should ever buy anything out of pocket. In general, if the expense is something you can easily cover with your own capital, you should buy it. This approach lets you avoid paying interest and losing money. You should also own things that you use every day. For example, if you own a landscaping business, it makes no sense to lease your lawnmower from someone else.
If you can afford to do so and it makes sense, you should buy the goods or services you need. However, if you are low on money or will not use the product frequently, loans and leases are always available.
Sia Hasan is a tech entrepreneur by day, and a freelance writer by night. Her passion lies in business technology, efficient and sleek programming, and customer relationship management. When she doesn’t have her nose pressed against her computer screen, you can find her spending time with the loves of her life, her two dogs, Pixel and Vector.
