Leasing is an agreement between two parties, where one party allows the other to use his/her property for a certain period of time, in exchange for a periodic fee. The property covered in a lease is usually real estate or equipment, such as a vehicle or machinery. There are two main types of leases: Capital lease (long-term) and Operating lease (short-term)
Financial leasing is a contract involving payment over a longer period. It is a long-term lease and the lessee is liable to pay much more than the cost of the property or equipment to the lessor in the form of lease charges. It is an irrevocable. In this type of leasing the lessee has to bear all costs and the lessor does not provide any service.
In an operating lease, the lessee uses the asset for a specific period. The lessor bears the risk of obsolescence and incidental risks. There is an option for either party to terminate the lease after giving notice.
It is an integrated supply of services which is based on the operational rental of a new vehicle for a certain period of time and amount of km’s, through the payment of a fixed rent, where the client only supports the depreciation of the vehicle estimated in the contract. It includes all necessary services for its normal performance and conservation.
A lease for longer than one, five or 10 years, depending on the specific asset being leased. A long term lease locks in the price one pays for the asset, however, long term leases offer little flexibility.
Leaseback, short for “sale-and-leaseback”, is a financial transaction in which one sells an asset and leases it back for the long term; therefore, one continues to be ablle to use the asset but no longer owns it.