What Is the Difference Between Leasing and Renting?

What Is a Lease Agreement?

For rental homes, such as an apartment, a lease agreement is a legal document used to set expectations between the lessor and lessee—often called landlord and tenant. Leases are issued by the landlord, but both parties must sign a lease prior to the tenant moving in. A typical lease agreement usually lasts for a year, but you can sometimes sign a lease for a shorter term, such as six months.

Lease agreements also typically include specific conditions related to the property, such as rules about:

• Pets
• Roommates
• Visitors
• Parking
• Quiet hours
• Smoking
• Renters insurance requirements

A lease agreement also outlines what actions the landlord may take if you fail to pay your rent on time or violate conditions of the lease. That might include possible late fees and eviction.

Most leases expire at the end of the lease term. However, some leases have clauses that allow you to end the lease early (under certain conditions) or extend the lease on a month-to-month basis. You may also have the opportunity to renew the lease when your term is up; often this means getting a fresh lease that may include a new rent price and other changes.

Pros and Cons of Leasing an Apartment

Leasing an apartment can have many advantages, but there are also some downsides. Before signing a lease, consider these pros and cons.

What Is a Rental Agreement?

A rental agreement is similar to a lease agreement. It's a legal document between a landlord or property owner and a tenant that outlines the term of the rental contract. Generally speaking, rental agreements are short-term contracts to rent a property month-to-month.

Rental agreements often automatically renew on a monthly basis unless either party decides to end the agreement. Most rental agreements allow either the landlord or tenant to terminate the contract at any time with proper notice—typically 30 days.

Similar to a lease, rental agreements spell out the obligations of both the landlord and tenant. Details may include the rent amount, termination details and other conditions or rules for the rental property, such as regarding roommates, pets, parking, visitors or maintenance.

Pros and Cons of Renting an Apartment

Renting an apartment has its perks, but there are also several drawbacks to consider before signing a rental agreement.

Learn more: Ways to Save Money on Rent

Should I Lease or Rent an Apartment?

The decision to lease or rent an apartment or home often depends on various factors, like your financial situation, the housing market and your living situation needs.

When to Consider Leasing

Leasing an apartment may be a good fit in the following situations:

• You're looking for long-term stability. Most leases last a year, so if you plan to stay in the same location for a while, leasing might make more sense than renting month-to-month.
• You want predictable budgeting. With a lease, your monthly rent amount is fixed for the entire length of lease, making it simple to plan your expenses.
• You want access to more housing options. Landlords often prefer long-term tenants, so you might have more luck finding an apartment to lease than rent, depending on where you're apartment hunting.

When to Consider Renting

Renting an apartment doesn't make sense for everyone, but it may be the right choice in the following situations:

• You want greater flexibility. Renting month-to-month means you can generally move out of your rental apartment at any time, for any reason—and you won't have to worry about the financial consequences that come with breaking a lease.
• You only need short-term accommodations. If you only need an apartment for a couple of months—due to a temporary job assignment or other short-term housing need—opting for a month-to-month rental apartment is likely the better choice.
• You're planning to buy a home in the near future. When you're actively house shopping—or in between selling your old house and closing on your next home—a short-term rental might be a good fit.

Learn more: Is It Better to Rent a House or an Apartment?

The Bottom Line

Whether you decide to lease or rent, keep in mind that you're entering into a legally binding contract, so make sure you understand your rights and obligations before you sign an agreement with the landlord. When applying to lease or rent an apartment, landlords consider numerous factors, including your income and credit history. While a poor credit history may not rule out your ability to get an apartment, it could lead to other requirements, like a higher security deposit.

You can get a copy of your credit report and FICO^® Score^Θ for free from Experian. And Experian's free credit monitoring can help you stay on top of your credit reports and scores. Once you're in your new apartment, don't forget to make sure your rent payments are contributing to your credit history and helping you build credit.