leasing meaning difference between buying and leasing types of leasing advantages of leasing

1. LEASING AND ITS TYPES

2. LEASING
a contractual agreement between two parties in which lessor
provides an asset to lessee

3. Difference between Buying & Leasing
• Buy :-
XYZ ltd. buys machinery and uses it, financed by
debt and equity.
Manufacturer XYZ ltd. Who buys and uses the
machinery financed through equity shareholders
and creditors.

4. • Lease :-
Bajaj Finserv (lessor) buys machinery, and XYZ
ltd. (lessee) leases it.
Manufacturer Bajaj Finserv (owns the
machinery but does not use it) XYZ ltd. (uses
the machinery but does not own it)

5. Elements of leasing
No of parties
to contract – 2
Asset Consideration
Lease period
Use vs
ownership
termination

6. Clauses in lease agreement
• Nature
• Description
• Delivery and redelivery
• Period
• Lease rentals
• Use
• Repairs and maintenance
• Alteration in contract

7. Legal aspects of leasing
The lessor (Bajaj Finserv) has the duty to:
• Deliver the asset to the lessee
• Authorize the lessee to use the asset
•Leave the asset in peaceful possession
The lessee (XYZ) has the obligation to :
• Pay the lease rentals periodically
• Take reasonable care of the asset
• Return the leased asset

8. Types of leasing
OPERATING LEASE –
• An operating lease is a contract in which the
lessor does not transfer all the risks and rewards to
the lessee and the cost of the asset is not fully
amortized during the primary lease period.

9. FEATURES -
• Short term agreement for the use of asset
between the lessee (XYZ) and owner of the asset
(Bajaj Finserv).
• Cost related to the asset are paid by the owner of
the asset.
• The primary lease period does not cover the cost
of the asset.
• The term of operating lease is always shorter
than the economic life cycle of the asset.
• It is mainly useful in case of computers, office
equipments, trucks, automobiles, etc.

10. FINANCIAL LEASING
A finance lease is a contract in which
the cost of the asset is covered in the
lease period by the lessor with an
acceptance rate of return.

11. FEATURES
•It is a long term agreement between the lessor
(Bajaj Finserv) and the lessee (XYZ).
•Cost related to asset are paid by the lessee.
•The lessee usually cannot cancel the lease.
•The lessee pays a series of rentals for using that
asset.
•The lessor recovers a large part of the asset in
addition to earning interest from the rentals paid by
lessee.
•The lessee has the option of acquiring ownership
of the asset.

12. Forms of financial lease
Sale and
lease back
Direct leasing
Leverage
leasing
Straight and
modified
lease
Primary and
secondary
lease
Domestic
lease
International
lease

13. SALE AND LEASE BACK
The owner of an asset sales it to a leasing
company(lessor)which lease it back to
owner(lessee).
Leaseback arrangement involves the sale of an
asset already owned by a firm (vendor) and
leasing of the same asset back to vendor from
the buyer.
Suppose, XYZ buys machinery and is now out of
funds, so it sells the machinery to the Bajaj
Finserv and gets funds. Now it will take the
machinery back on lease from Bajaj Finserv.

14. DIRECT LEASING
• Direct lease is defined as contractual arrangement in
which the lessor purchases the property directly from
manufacturer and leases that property to the lessee .
• It is two types:-
 Bipartite- there are two parties involved namely equipment
supplier cum lessor who manufactures the asset and leases it
also and lessee.
 Tripartite- the are three parties involved namely equipment
supplier (manufacturer), lessor (who buys the asset from
manufacturer and leases it), and lessee.

15. LEVERAGE LEASE
• A leverage lease is an arrangement under
which the lessee borrow funds , for leasing the asset
,from third party called lender which is usually a
bank or a finance company.
• Three parties are involved namely lessor, lender and
lessee.
• This lease is usually of high cost and for a long period
of time.

16. STRAIGHT LEASE AND MODIFIED LEASE
• Straight Lease requires the lessee firm to pay
lease rentals over the expected service life of
the asset and does not provide for any
modifications to the terms and conditions of
the basic lease.
• Modified Lease provides several options to
the lessee during the lease period.

17. PRIMARY AND SECONDARY LEASE
• Primary Lease are those lease in which the
rental payments are high so the cost of the
asset can be covered.
• Secondary Lease are those in which there are
nominal rentals.

18. DOMESTICLEASE and international lease
• Domestic Lease is if all the parties to an
agreement namely equipment supplier, lessor
and lessee are domiciled in the same country.
• International Lease is if all the parties to an
agreement in the different countries , it is
called international lease. It is of two types,
import lease and cross border lease.

19. INTERNATIONAL LEASE ARE OF TWO TYPES :
• IMPORT LEASE : when lessor and lessee reside
in same country and equipment supplier in
different country . The lease arrangement is
called import lease.
• CROSS BORDER LEASE : when lessor and
lessee residing in two different countries and
no matters where the equipment supplier
stays , the lease is called cross border lease.

20. Advantages of leasing
To the lessee :-
• Doesn’t have to pay cash immediately.
• Easy source of finance.
• Enhanced liquidity.
• No disposal problem
• Convenience & flexibilty

21. To the lessor:-
• Higher profits
• Tax benefit
• Quick returns

22. THANK YOU