Difference between financial and operational lease

The differences

• Ownership: with financial lease, you become the owner; with operational lease, you do not.
• Costs: financial lease only covers financing, operational lease is usually all-inclusive.
• Balance sheet: financial lease appears on your balance sheet, operational lease generally does not.
• End of contract: keep the car or return it.

Which one suits you?

If you want to build up assets, consider financial lease. If you prefer predictable costs with no hassle, operational lease is a better fit.

How does the contract term influence your lease choice?

The term of a lease agreement is a crucial factor when choosing between financial and operational lease. With operational lease, the term is often aligned with the expected useful life of the vehicle, taking into account factors such as depreciation and maintenance. Shorter terms of, for example, 24 or 36 months are popular because they offer flexibility and ensure a relatively young fleet with the latest technologies and safety features.

With financial lease, the term is more focused on depreciation over a longer period, often 48 to 72 months, which can reduce monthly payments. The company then typically wants to remain the owner of the asset for longer. However, a longer term can mean that the car requires maintenance sooner or that the residual value is lower than estimated, which can affect the total costs after the contract ends.

What about fiscal aspects and the balance sheet position?

The fiscal treatment of financial and operational lease differs significantly and has a direct impact on the annual accounts. With financial lease, the vehicle is capitalised on the balance sheet as an asset, with associated depreciation and interest costs. This affects the solvency and liquidity of the company. The VAT on the purchase is directly deductible. There may be a right to investment deductions, which provides a fiscal advantage and can reduce taxable profit.

Operational lease is typically kept off the balance sheet, meaning the vehicle is not recorded as an asset. This can be advantageous for the company's balance sheet ratios and creditworthiness. The lease instalments are fully deductible as business expenses, and the VAT on these instalments is recoverable. This simplifies administration and reduces the financial risk for the entrepreneur, as Lease Point remains the owner.

• Financial lease: vehicle on balance sheet, depreciation and interest.
• Operational lease: vehicle off balance sheet, instalments deductible.
• Impact on the company's solvency and liquidity.

Frequently asked questions