Leases and its Types

What is lease?

Lease can be defined as a right to use an asset or capital goods on payment of periodical amount in which lessor is the actual owner and lessee is the one who acquires the right to use such leased asset.

Types of Leasing:

(a) Operating lease - 

In such lease, the primary lease period is short and the lessor would not be able to realize the full cost of the asset and other incidental charges thereon during the initial lease period. Besides cost of the asset, the lessor also bears insurance, maintenance and repair costs.

(b) Financial Lease - 

It is a long term arrangement, which is irrevocable during the primary lease period which is generally the full economic life of the leased asset. Financial lease involves transferring almost all the risks incidental to ownership and benefits arising therefrom except the legal title to the lessee.

Categories: Finance