Banking Term: Lease Financing

Banking Term: Lease Financing

• Financing for the business of renting houses or lands for a specified period of time and also hiring out of an asset for the duration of its economic life. Leasing of a car or heavy machinery for a specific period at specific price is an example.
• A Finance Lease (or Capital Lease) is a lease that is primarily a method of raising finance to pay for assets, rather than a genuine rental.
• It is a commercial arrangement where:

1. the lessee (customer or borrower) will select an asset (equipment, vehicle, software);
2. the lessor (finance company) will purchase that asset;
3. the lessee will have use of that asset during the lease;
4. the lessee will pay a series of rentals or installments for the use of that asset;
5. the lessor will recover a large part or all of the cost of the asset plus earn interest from the rentals paid by the lessee;