Instalment sale vs lease vs rental for business assets

An instalment sale is a common way to finance a bakkie, truck or machine. You pay for the asset in monthly instalments over an agreed term, and it becomes yours at the end of the agreement, once everything due has been paid. With a rental, you use the asset but never own it. With a lease, what happens at the end depends on the agreement.

Instalment sale

The funder pays the supplier for the asset. You repay the funder monthly over an agreed term. The cost is usually prime-linked or risk-based, depending on the funder, the asset and you.

You become the owner at the end of the agreement, once all amounts due have been paid. Until then, the funder is usually the title-holder, and that is its security. If repayments stop, the asset can usually be repossessed.

Some agreements put a larger final payment at the end, a balloon payment, to bring the monthly instalment down. That lowers what you pay each month but means a big amount is due at the end. Plan for it from day one.

Lease

With a lease you pay to use the asset for an agreed period. What happens at the end depends on the agreement. Under a WesBank lease, for example, ownership passes to you if you pay the nominal amount and meet the other conditions in the lease. Ask the funder who owns the asset during the term and what your options are at the end.

Rental

With a rental you pay to use an asset, and you will never own it. At the end you hand it back. Ask what the rental includes and how long it runs.

Side by side

	Instalment sale	Lease	Rental
Who owns it during the term	The funder holds title until you have paid in full	Ask the funder	Not you
Who owns it at the end	You, once all amounts due are paid	Depends on the agreement. Under a WesBank lease, you, if you pay the nominal amount and meet its conditions	Not you: you never own it

Before you sign

Match the term to the asset's useful life. Don't still be paying for a bakkie after it has stopped working.
Ask for the total in rand. Add up all the instalments, any deposit and any balloon. Our page on the true cost of business funding shows how.
Check what happens if you miss a payment. The asset can usually be repossessed.
Ask about surety. You may be asked for a personal surety from the director. Ask whether it is needed and what it covers.
Check insurance. The NCA lets credit providers insist that you have, as a minimum, credit insurance. Ask the funder what cover it wants for the term.

Does the NCA apply?

The National Credit Act lists both an instalment agreement and a lease among the kinds of credit transaction it deals with. WesBank's guide to the NCA says "True rental agreements are not credit agreements for the purposes of the NCA." But the NCA only covers some agreements with businesses. For a business, the NCA usually covers a company or close corporation (CC) only if both its annual turnover and its asset value (counting related companies) are under R1 million. Even then, it doesn't cover a loan or other credit transaction of R250,000 or more.

If the NCA does apply, interest and fees are capped, and the cap depends on the type of credit agreement. See NCA maximum interest rates, and ask the funder which type it treats your agreement as. Where the NCA applies, the funder must be registered with the National Credit Regulator.

Who we help

Quick Access Capital is a broker. We don't lend. Asset finance is one of the funding types we arrange, and the funder decides how the agreement is set up. We work with registered Pty Ltd companies and close corporations (CCs), trading for 12 months or more, with funding from R50,000. You pay us no broker fee. The funder may pay us a commission or referral fee on a funded deal.

Instalment sale vs lease vs rental