Nowadays, very difficult for an individual or entity to buy an expensive resource at one time. In this case, leasing and finance are the two best lines of action, which allow a person to use the asset when they do not have enough money to pay the price. The contract of leasing an agreement in which the entity can use and control the asset without actually purchasing it. a type of good for rent.
On the other hand, the finance another alternative to the purchase of the asset, in which the financial company pays the price of the asset on behalf of the company and then the company repays the amount to the financial company, in monthly installments. Most people create confusion about these two terms. So read the article carefully to learn about the important differences between leasing and finance.
|Sense||The lease is a financial arrangement in which a person purchases the resource and allows the other to use it.||Finance is an agreement that allows you to purchase the resource without paying the full amount in a single payment.|
|It allows you||To use the resource||To possess the good|
|consideration||Leasing lease||Down payment plus equal monthly installment|
|Installment||It consists of the cost of using the resource||It consists of capital plus interests|
|Monthly payment||Bass||Relatively high|
|Property option||At the end of the lease, you have two options: buy it or return it to the lessor.||Once all the fees are paid in full, you are the owner of the property.|
Definition of location
The term lease means a contractual agreement under which a party that can be an owner / lessor / leasing company purchases the asset and guarantees the lessee the right to use the asset in the specified period, in exchange for periodic payments of rental fees. Rental fees are paid as compensation for the use of the asset, at short intervals. The expenses amount to the lessor's income.
The accounting principle no. 19 issued by ICAI deals with the lease. It can be operational or financial, individual investor or financially leased, open or closed, national or international. The duration of the lease can be long-term or short-term, as agreed by the parties involved and the nature of a contract. The document which specifies the terms and conditions of the lease agreement known as a lease agreement.
Definition of finance
Funding is an agreement under which the financial institution funds the money to buy the good. a sort of loan agreement in which you become indebted to the financial institution that funded the resource, so you have to repay the money in monthly installments. The total value of the asset financed comparatively higher than the cash value of the asset as it includes the amount of interest together with the capital.
When financing the activity, first of all, it is necessary to make a down payment that a certain percentage of the total value of the asset and the remaining amount is equally distributed over the specified period, in the form of equal monthly installments (EMI). In this option, it is not necessary to pay the full amount in a stretch; rather, the payments of the asset are postponed to a later date. When you pay all monthly payments, you have become the rightful owner of the property.
Nowadays, asset finance available at zero down payment and zero interest rate where you actually pay the cash value of the asset in installments.
Fundamental difference between leasing and finance
The difference between leasing and financing can be clearly expressed for the following reasons:
- A kind of financial agreement in which the lessor purchases the asset and has it used by the lessee, since the cash consideration is called a lease. Finance indicates a type of loan agreement under which you can buy and buy and the financial institution pays the money on your behalf. In this way, the agreement creates a debt of the buyer against the financial institution.
- Lease agreement allows you to use the resource. Finance allows you to own the resource.
- The consideration paid for the lease known as rent. Vice versa, in finance, while buying the asset it is necessary to pay the cash, ie the deposit and the remaining amount in equal monthly installments.
- The amount of the installment consists of the cost of using the asset. On the other hand, the amount of the installment consists of capital and interest.
- When a leased asset is the same asset financed, the amount of the monthly installment of the leased asset will be low compared to the asset financed.
- At the end of the lease, you have two leased options, which is to say buy the asset or return it to the lessor. In the case of finance, once all the obligations were paid, you became the owner of the property.
When you want to buy a good but you don't have enough money to pay for it, you can give yourself a lease and a loan. The fundamental difference between these two is the comparatively cheaper finance lease than finance. So, if you have to make a choice between these two, you can choose the option that best suits your budget and your purchasing power.