Rent vs. Lease: What's the Difference?

Both renting and leasing offer the chance to live in a house or apartment without owning it, yet they are both different. Renting is generally a shorter-term option, whereas leasing typically provides a fixed contract for six months or more.

Understanding the difference and how both work is important. In this article, we take a look at the definition of renting and leasing, the key differences, and the pros and cons.

What does it mean to rent?

Renting typically refers to a housing arrangement where a tenant pays a landlord to occupy a property, often under a month-to-month agreement. Rental agreements may be written or verbal and usually specify the rent amount, deposit requirements, whether utilities are included, and rules such as pet allowances.

Rental agreements may automatically renew unless one party gives written notice, typically 30 days in advance. Month-to-month rentals could provide more flexibility than leases, which may make them suitable for renters who anticipate relocating or prefer short-term housing.^[1]

What does it mean to lease?

A lease is a written agreement that sets a fixed term, typically six months or more, giving a tenant the right to occupy a rental unit for that period. As long as the tenant pays rent and follows the lease terms, the landlord generally cannot raise the rent or change other conditions during the lease unless both parties agree to an amendment.

When the lease expires, it usually does not renew automatically. If the tenant remains with the landlord’s consent, the agreement often becomes a month-to-month tenancy, and the rental terms from the original lease may continue unless updated.^[2]

The difference between renting and leasing a property

While both renting and leasing allow someone to live in a property they do not own, the structure of each agreement differs. A lease typically refers to a fixed-term contract, often at least six months, that outlines the rent, responsibilities, and conditions that stay the same throughout the agreement. A rental agreement usually renews on a monthly basis and may be updated with written notice.

Leases may offer more predictability, since the rent and terms are locked in for the full contract period. Rental agreements may offer more flexibility, as either party can end or change the agreement with advance notice, often 30 days. This flexibility is one reason why some people also choose to rent rather than buy a home entirely or rent over choosing a lease agreement.

A lease may also provide more upfront clarity around responsibilities, while rental agreements may require more frequent updates or renegotiation.^[2]

^{[1] [2]}

Pros and cons of renting

Pros

• Transition periods: Renting can offer an alternative option to buying or leasing during a transition period.
• Flexibility: The short-term agreements allow for flexibility. You won’t need to worry about ending your stay (once your contract is up at the end of the 30-day period) unlike a lease that is longer-term.
• Negotiation: A month-to-month rental agreement may allow some room for negotiation at the end of each month. Whether financially or asking permission to add a roommate, who can then split the bills with you.
  Source ^[1]

Cons

• Rent increases: With rental agreements being month-to-month, your landlord can raise your rent at the end of the short term. Although, some states limit how much rent a landlord can charge and how much notice must be given.
• Termination risks: There’s uncertainty that comes with rental agreements, your agreement could be terminated at the end of the month. Again, some laws may restrict when a landlord can terminate your agreement.
• Potentially more expensive: Landlords incur the cost of vetting tenants, painting, and maintaining the property and may therefore charge more rent on month-to-month agreements.
  Source ^[1]

Pros and cons leasing

Pros

• Cost-effective: Signing a longer lease may lower the lessor’s costs of maintaining the property and this could subsequently lower the rent prices for you as the lessee.
• Availability: Longer-term leases may be more readily available, making them easier to find and giving you more options to choose from.
• Fixed monthly payments: Agreeing to fixed payments during a lease (a flat rate) could help you budget for the same payment every month, unlike a short-term rental agreement where rent can change with less notice.
  Source ^[1]

Cons

• Longer commitment: Leases require a longer commitment which may not be ideal for you, if you get transferred, or wish to move, you may have to break the lease early and pay the consequences. Breaking a lease may result in financial consequences that affect your credit score.
• Less negotiation: Once terms are agreed, there’s less chance of negotiating for an additional housemate, pet, or other changes to the house or apartment.
  Source ^[1]

How rent and lease agreements affect your credit

Rent and lease payments typically do not appear on your credit report unless they are actively reported to the credit bureaus. Most landlords do not report payments by default, so on-time payments may not help your credit score unless you use a rent reporting service.

Self offers a free rent reporting service that reports positive rent payments to Equifax, Experian, and TransUnion for tenants. Only on-time payments are reported, which may help renters build credit without the risk of negative marks.

However, late rent payments can still impact your credit even if the rent is not being reported monthly. According to the Consumer Financial Protection Bureau (CFPB), if unpaid rent is sent to a debt collector, that collection account may be added to your credit report and could lower your credit score. This applies whether you are under a rental agreement or a lease.^[3] FICO® Score 9 and later models treat collection accounts differently to previous versions. While any unpaid rent sent to collections may appear on your credit report, paid collection accounts are no longer factored in.

Bottom line

Rental and lease agreements are similar in many ways but the main differences tend to be the lease terms, with them usually being longer for lease agreements (usually six months or more) and terms being fixed, whereas a landlord can change terms on a month-to-month rental agreement with sufficient notice (typically 30 days).^[1]

Sources

1. Experian. "What’s the Difference Between Leasing and Renting?" https://www.experian.com/blogs/ask-experian/difference-between-leasing-and-renting/
2. Nolo. "Leases and Rental Agreements FAQ." https://www.nolo.com/legal-encyclopedia/leases-rental-agreements-faq.html
3. Consumer Financial Protection Bureau. "Does Late Rent Affect My Credit Score?" https://www.consumerfinance.gov/ask-cfpb/does-late-rent-affect-my-credit-score-en-1815/

About the author

Becca has over 10 years of experience as a content writer, working across various industries including finance, digital marketing, education, travel, and technology. Her work has been featured in publications including Forbes, Business Insider, AOL, Yahoo, GOBankingRates, and more.

Editorial policy

Our goal at Self is to provide readers with current and unbiased information on credit, financial health, and related topics. This content is based on research and other related articles from trusted sources. All content at Self is written by experienced contributors in the finance industry and reviewed by an accredited person(s).