Car Leasing and Car Renting - What's the Difference?

Many automotive consumers assume that car renting and car leasing are the same thing, or are very similar.

Not true.

This misconception may come about from the fact that apartment renting – which is very familiar to most people – and apartment leasing are essentially the same thing.

It is therefore natural for someone not familiar with car leasing to assume that it is much like apartment renting or leasing.

It is not.

What is car renting?


Car rental companies exist to fulfill the short-term automobile use needs of traveling business people, vacationers, or those who might need a particular type of vehicle for temporary use.

Rental cars are owned by a rental company and are made available to customers for relatively short-term use. The company maintains and services its vehicles and carries basic insurance. Customers agree to not damage the vehicle, to buy gas, to purchase additional insurance if personal auto insurance is not applicable, and to return the vehicle within a specified time. All maintenance is handled by the rental company.

Rent rates are determined by the car rental company, based on a daily or weekly fee, and includes either unlimited mileage or an additional mileage rate. The method by which rates are determined is not revealed to customers and can vary widely, even within the same rental company, based on various discount schemes.

Rental companies make money by renting the same car over and over again.

Car renting is not a form of financing, as is leasing.

Car renting is much the same as apartment renting or leasing.

What is leasing?
By contrast, leasing is actually a method of vehicle financing that is very similar to loan financing. A lease company — or manufacturer's finance company – only gets involved after a customer decides he wants lease financing. The lease company buys the car from the dealer at the customer-negotiated price and loans it back to the customer.

The "loan" in this case is not money, but a vehicle. Since the lease company has invested money in the vehicle, they expect to be paid interest on that money. Since all cars depreciate in value, they also want to be compensated for the reduced value of the vehicle as the customer adds miles to it and as the vehicle becomes older. It will not be worth as much when it's returned to them as when it was new.

At lease-end, vehicles are returned to the lease company as the final payment of the "loan." Lease payments are easy to calculate using a well-defined formula used throughout the leasing industry, unlike car renting for which there is no way for customers to calculate rental rates.

In short, lease payments are determined by the negotiated selling price of the vehicle, anticipated depreciated value at lease-end (residual value), term (length of lease), and the money factor (financing rate, similar to interest rate). See How Car Lease Payments are Calculated.

A leased vehicle is usually only leased once, when it's new, not over and over again like a rental car.

How are car renting and car leasing different
Leasing is a form of financing; renting is not. Lease terms begin at 24 months; renting can be for as little as a day or less.

You may be able to swap cars in the middle of a rental; not so with leasing. Since leasing is a form of financing, customer credit scores, income, and debt are important; not so with renting.

Leasing appears on your credit report just like a loan; renting does not. Defaulting on a lease damages your credit score; defaulting on a rental does not.

With renting, you choose your vehicle from rental companies' available makes and models. With leasing, you can lease any new vehicle make and model you want.


It's easy to end a rental early by simply returning the car, while ending a lease early can be very costly, because it's a long-term contract.

For the same length of time, renting is much more expensive than leasing.

Why car leasing is not like apartment leasing
Cars depreciate in value and require money to purchase. Leasing pays for the depreciation and interest on the money provided by a lease company to purchase the car.

Apartments are real estate and generally don't rapidly depreciate in value, as do automobiles. In fact, many increase in value unless they are not maintained well. Therefore apartment rental fees do not pay for specifically depreciation or anything else specific. There is no interest or finance charges. An apartment owner needs to make enough money to pay the mortgage, taxes, utilities, upkeep, and make a profit. He can rent his apartment over and over again, long after it's new.

There is no formula to calculate apartment rental rates, as there is with car leasing.

Nothing to show for your money
It's true with apartment renting that you have absolutely nothing to show for the money you've paid, and rental rates can easily be higher than mortgage payments for a home.

It's also true with car leasing that you have nothing to show for your money. However....you've paid 30%-60% less than loan payments for the same car, and you have specifically paid for your car's depreciation, and only the depreciation, not the entire vehicle cost.

The money you've lost to depreciation is exactly the same money that is lost by someone who has purchased the same car with a loan. His car depreciates exactly the same amount as your leased car, but he pays for the entire vehicle. He therefore has nothing to show for that part of the money that is lost to depreciation if he sells or trades. That money is gone, for both a buyer and a leaser.