Difference between Leasing and Hire Purchase | Financial Management

The upcoming discussion will update you about the differences between leasing and hire purchase.

Difference # Leasing:

1. The lessee will use and have control over the asset without having a title to it and will pay periodical lease rentals over a specified period.

ADVERTISEMENTS:

2. The lessee uses the asset as per lease contract.

3. The lessee will only pay lease rent over the period of contract.

4. The lessor claims the deprecation on the asset and lease rentals as an operating expense.

5. The lessee may acquire the title to the asset at the end of the lease period, if the lease contract allows otherwise, the title to the asset remains with the lessor.

6. No down payment need to be paid in case of lease financing.

7. Risk of obsolescence will be borne by the lessor.

Difference # Hire Purchase:

ADVERTISEMENTS:

1. The hire purchaser will acquire the possession of goods by paying an initial deposit, followed by number of installments over a specified period of time and the title to the asset will pass on to him after payment of final installment.

2. The hire purchaser is allowed to acquire the possession of an asset belonging to the vendor.

3. The hire purchase price includes the cost of an asset as well as interest payable to the vendor for making the payment over a long period in installments.

4. The hire purchaser claims the depreciation as well as charge of interest as business expenditure.

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5. The hire purchaser will acquire full title to the asset on making the final installment.

6. About 10 to 20 per cent of the cost of asset is to be made as down payment under hire purchase contract.

7. Risk of obsolescence will be borne by the hire purchaser.

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