Meaning of Leasing
A lease is an agreement between two or
more parties called lesser and lessee where lesser is communicates to lessee
the rent in return of the asset for an agreed period of time. The ownership of
the asset continues to be in the hands of the lesser and lessee enjoys the
rights of the assets for the agreed period.
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| LEASING AND TYPES OF LEASING |
Parties Involved in Leasing
§ Lessee: Lessee is the person who lends the asset to another person
for money
§ Lesser: Lesser is a person who pays money to lessee for the
acquisition of certain asset to carry out his operation.
Types of Leasing
Leasing can be broadly classified into
two types. Namely
§ Financial Leasing
§ Operating Leasing
§ Leveraged Leasing
Now let us
understand the types of leasing in-depth,
§ Financial Leasing:
It is also
called Capital Lease. Here in financial leasing present value of the minimum
lease value payment at the beginning of the lease is equal to or considerably
the entire of the fair value of the asset. In this type of leasing the asset is
irrevocable and is usually for nearly entire life of the asset. After the lease
agreement is done lesser need not to worry about the maintenance of the asset
as it becomes the responsibility of the lessee in financial leasing.
§ Operating Leasing:
Here the
leasing may take place for entire life of asset or a specific period. In this
lease lessee has the right to terminate the lease when ever required but a
prior notice is to be given to the lesser. Thus we can say that operating lease
can be cancelled. In this lease it is difficult for the lessee to completely
recover his investment to full extent. Lesser has a risk of Obsolescence of the
asset. In this lease the lesser bears the maintenance expenses.
§ Leveraged Leasing:
A finance and operating lease
becomes a leveraged lease if apart from lesser and lessee a long term lender is
involved in the leasing. In this leasing the lesser finances only a small part
of the investment and the rest is financed by the long term lender. This type
of lease is used by the lesser when large capital outlay is required for the
acquisition of the asset that the lesser finds it necessary to use lender
services for acquisition of asset.
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