What is lese financing

A lease can be defined as a contractual agreement wherein one party i.e., the owner of an asset bestows the other party the right to use the asset in return for a periodic payment. It is otherwise called a process of leasing an asset for some specified period. The owner of the asset is called as the 'lessor' and the party that makes use of the asset is called as the 'lessee' (see Box A). The lessee pays a fixed periodic amount called lease rental to the lessor for the use of the asset. The terms and conditions that bound the lease arrangements are mentioned in the lease contract. During the end of the lease period, the asset is returned to the lessor. Lease finance paves way for an important means of modernisation and diversification to the organization. This type of financing is more rampant in the acquisition of such assets as computers and electronic equipment that become obsolete quicker due to the fast changing technological developments. In the process of making the leasing decision, the cost of leasing an asset should be compared with the cost of owning the same.