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Banking Term: Lease Financing

Find important banking term that is useful in upcoming banking exam.

Jun 23, 2015 14:40 IST
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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;

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