The document compares and contrasts leasing and hire purchase financing. Leasing involves an agreement between a lessor and lessee where the lessee pays periodic lease rentals to use an asset over time, but ownership remains with the lessor. Hire purchase allows a hirer to pay for an asset in installments, with ownership transferring to the hirer after the final payment. Key differences include that leasing is typically used to finance business assets while hire purchase can be for business or consumer goods, and ownership transfers to the hirer under hire purchase but reverts to the lessor under leasing.

3. LEASE
Lease is a financial contract between the business
customer (user) and the equipment supplier
(normally owner) for using a particular
asset/equipment over a period of time against the
periodic payments called “Lease rentals”.
Lease generally involves two parties i.e. the lessor
(owner) and the lessee (user). Under this
arrangement, the lessor transfers the right to use to
the lessee in return of the lease rentals agreed upon.
Lease agreement can be made flexible enough to
meet the financial requirements of both the parties.

4. HIRE PURCHASE
Hire Purchase is a kind of installment purchase
where the businessman (hirer) agrees to pay the
cost of the equipment in different installments over
a period of time. This installment covers the
principal amount and the interest cost towards the
purchase of an asset for the period the asset is
utilized. The hirer gets the possession of the asset as
soon as the hire purchase agreement is signed. The
hirer becomes the owner of the equipment after the
last payment is made. The hirer has the right to
terminate the agreement anytime before taking the
title or the ownership of the asset.

5. LEASING Vs. HIRE PURCHASE FINANCING
• Both lease financing and hire purchase financing
are a form of secured loan.
• Both involves fixed payments.
• The hirer becomes the owner of the assets as
soon as he pays the last instalments. In case of
lease, the asset reverts back to the lessor at end
of the lease period.

7. LEASING HIRE PURCHASE
OWNERSHIP
In lease, ownership lies
with the lesser. The
lessee has the right to
use the equipment and
does not have an option
to purchase
In hire purchase, the
hirer has the option to
purchase. The hirer
becomes the owner of the
asset/ equipment
immediately after the last
instalment
METHOD OF
FINANCING
Leasing is a method of
financing business
assets only
Hire purchase is a
method of financing both
business assets and
consumer articles

8. LEASING HIRE PURCHASE
DEPRECIATION
In leasing,
depreciation and
investment
allowance can be
claimed as an
expense by the
lesser
In hire purchase
depreciation and
investment allowance
can be claimed by the
hirer.
TAX BENEFITS The entire lease
rental is tax
deductible expense
Only the interest
components of the hire
purchase instalments are
tax deductible

9. LEASING HIRE PURCHASE
SALVAGE
VALUE
The lessee, not being
the owner of the
assets and not enjoy
the salvage value of
the assets
The hirer, in purchase
being the owner of
assets and enjoy the
salvage value of assets
DEPOSIT The lessee is not
required to make any
deposits
The hirer is required to
deposit 20% of the cost

10. LEASING HIRE PURCHASE
RENT-
PURCHASE
The lessee take the
asset on a rent basis
Here the asset is
purchased by the hirer
EXTENT OF
FINANCE
Lease financing is
invariably 100%
financing. It does not
required any
immediate down
payment or margin
money by the lessee
In hire purchase, a
margin equal to 20-
25% of the cost of the
assets to be paid the
hirer.

11. LEASING HIRE PURCHASE
MAINTENANCE The maintenance of
leased asset is
responsibility of the
lessee
Here the cost of
maintenance of hired
assets is to be borne
by the hirer himself
REPORTING
The leased assets are
shown by way of
footnote only
The assets on hire
purchase is shown in
the balance sheet of
the hire.

12. LEASING HIRE PURCHASE
DURATION Lease agreements are
done for longer
duration and for
bigger assets like
land, property etc.
Hire Purchase agreements
are done mostly for
shorter duration and
cheaper assets like hiring
a car, machinery etc.