5 Types of Leases that You Should Know About - India

As millennials look for more and more types of investment platforms, the possibility to make money from an unconventional option becomes real.

Investment through leasing is still a new concept that the Indian populace is getting used to. Experts have time and again stated that for a healthier financial future, investing is paramount and investment via leasing is emerging as a preferred option across the world.

In our previous article, we covered the advantages of leasing. In this article, we are going to look at 5 major types of leases.

5 Major Types of Leases

Here are the 5 major types of leases that you should know about if you are looking to invest via leasing.

1. Financial Lease

This is quite a popular type of leasing, wherein the company/lessor that gives the product for leasing is the legal owner.

The lessee (person who is renting the product) has operating control over the asset. A possible number of things can happen at the end of the lease term

a. The ownership is transferred from the lessor to the lessee

b. The asset is returned to the lessor and he can decide what he wants to do with it

c. The lessee will extend the lease period by entering into a secondary phase

A financial lease is preferred for a number of things including transportation and equipment. Imagine you own a logistics company and you need 50 cars for your business. In this case, you would opt for a financial lease because you don't have to return the vehicle in a good condition.

 2. Operating Lease

An operating lease is a stark contrast to a financial lease because it does not transfer ownership from the lessor to the lessee at the end of the term. Now, once the leasing period comes to an end the asset will either be re-hired for another lease purpose or returned to the lessor.

The asset being sold will have a resale or residual value once the lease period expires

Investment via leasing through this process is emerging, as financial platforms are giving a chance to retail as well as businesses to invest in assets via lease. The good part is that you don't need an abnormally large amount to start investing.

3. Leveraged Lease

A leveraged lease is when the lessor is unable to finance the lease by himself/herself and therein, calls upon other investors to invest in the asset along with him/ her. The asset is then given on lease to a lessee.

4. Tax-Oriented Lease

A tax-oriented lease is also called a true lease. In this type of leasing the lessee is given full possession of the asset, for a monthly fee. Once the lease term is over, the asset will have to be returned to the lessor.

Why it's called a tax-oriented lease is because, through this contract, the lessor can claim all the specified tax deductions and benefits associated with leasing.

5. Sales and Lease-Back

This type of lease is typically seen with regard to real estate. The owner of a property sells the asset and after a point of time reclaims the asset. Through this process, the owner still uses the asset but does not own it.

In this blog, we have summarized 5 of the major types of leases. However, there are various other categories and types.

Keep reading our blog to know more about them.

Happy Leasing!

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