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People often use the terms rent and lease interchangeably. Is there a difference between the two?
The answer lies somewhere in the middle. While both terms refer to similar property matters, there are vital legal differences that you should know. Protecting your rights means understanding your status.
When it comes to residential housing, rent refers to the monthly fee you pay to occupy a particular property, usually an apartment. However, you can rent a car while on vacation, an Airbnb to stay in, and even a video game console. You wouldn’t say you leased these items. So, what distinguishes a lease from a rent?
A Lease Is a Longer Term
The most significant difference between a rental and a lease is that the latter refers to a long-term contract. In legal terms, a lease refers to the right to the exclusive possession and use of a property for a specified period. You can see this real property principle at work in two critical areas you may understand:
- Apartment leases: If you rent an apartment, you’ll sign a contract after undergoing the credit and background check to ensure you meet minimum financial qualifications. Doing so gives you the right to inhabit the property as long as you don’t violate contractual terms.
- Vehicle leases: Vehicle leases work the same way. When you go on vacation, you rent a car. However, you can alternatively lease a vehicle for two to five years, giving you exclusive ownership interest.
A few additional factors explain the difference between a rental and a lease. One is the qualifying process. Remember that credit and background check? When you sign a leasing contract, you typically promise to make monthly payments unless you have cash in hand — but if you have the latter, most people opt to buy outright.
There are some exceptions — for example, an individual who frequently relocates for work may pay upfront for an apartment for a year to spare themselves a monthly bill. However, in general, the property owner has to know that you will fulfill your financial obligations. If you have a history of not repaying debt, your landlord could face costly eviction proceedings to get you to vacate the residence.
The same goes when you lease a car. You can rent one temporarily with little more than a credit card and a valid driver’s license. However, when you take on a financial obligation spanning years, your lender must know you’ll repay. The minimum credit score qualifications for leasing a vehicle are often higher because you could potentially drive off with the merchandise. It’s challenging to flee with an apartment on your back.
Leases Offer More Permanency
The final difference between a rental and a lease on the personal side of doing business has to do with your legal rights. When you sign a leasing contract, you get more protection than merely renting. If your landlord wants to sell a home where you have an active lease, they must transfer it to the new owner — they can’t require you to leave. You remain in the property with a new landlord.
However, if you rent—or if your lease term expired and you went month-to-month—you have no such protections. Your landlord need only give you 30 days from the time rent is due for packing your belongings.
Conversely, though, a lease demands obligations of you. If you sign a two-year apartment lease and decide to move six months later, your landlord may require a cancellation fee or help in finding a replacement tenant. Read your contract carefully before signing if you think you may relocate. You could negotiate a month-to-month option if you need more flexibility.
Leases may also contain an option to renew or even purchase after the term. When it comes to real estate, exercise caution. There are a ton of rent-to-own scams, and you don’t want to fall prey to an unscrupulous individual. Try finding a reluctant landlord who wants to sell if you know you want to buy but need more time to save for a down payment. You could get in the home while putting a portion of your monthly payment toward the sales price.
With vehicle leases, your dealer will inform you of your right to buy at the lease term’s end. However, many folks opt to trade their ride in for a new one. You do retain the right to purchase the car, though, if you are tired of making monthly payments.
Now That You Know the Difference Between a Rent and a Lease, Which Is Right for You?
Knowing the difference between a rental and a lease is equivalent to knowing your legal rights. Now that you understand the disparity, which option is right for you?