What is "Lease" and What is "Hire Purchase" ?

Lease and hire purchase

Lease:A contract of lease may be defined as “A contract whereby the ownerof an asset (lessor) grants to another party (lessee) the exclusive right to use the asset usually for an agreed period of time in return for the payment of rent.” Important features here are:

1.Owner and User are different

2.Depreciation claim is not with the user (lessee) as he is not the owner.Lessor (owner) claims the depreciation.

3.Lease (rent) payment is a tax-deductible expense.

4.In most transactions, asset is delivered directly to the lessee by themanufacturer/ supplier. Lessor makes payment to the supplier andreceives rent from lessee in future periods.

5.Lease funded assets do not alter Debt: Equity ratio.

Hire Purchase: 

In case of Hire Purchase transaction, the goods are deliveredby the owner to another person on the agreement that such person pays the agreed amount in periodical installment

In lease the owner gives the right to another party to use asset/services on a monthly remuneration, however, title of the assets/services stays with owner during whole period. 

I hire purchase owner gives the right to use an asset/services to another party for a specific period and titles stays with owner during this period. At the end of this period title is transferred from owner to the other party. 

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• Ownership of the Asset: In lease, ownership lies with the lessor. The lessee has the right to use the equipment and does not have an option to purchase. Whereas in hire purchase, the hirer has the option to purchase. The hirer becomes the owner of the asset/equipment immediately after the last installment is paid.
• Depreciation: In lease financing, the depreciation is claimed as an expense in the books of lessor. On the other hand, the depreciation claim is allowed to the hirer in case of hire purchase transaction.
• Rental Payments: The lease rentals cover the cost of using an asset. Normally, it is derived with the cost of an asset over the asset life. In case of hire purchase, installment is inclusive of the principal amount and the interest for the time period the asset is utilized

Leasing- An asset renting transaction. The financier buys the assets and rents it out for a fee paid in installments.

Hire purchase is a system of acquiring goods on credit whereby the seller of the goods is regarded as the dealer, the purchaser is regarded as the hirer and the financier as the owner.

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