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Difference between Leasing finance and Hire-Purchase finance


Difference between Leasing finance and Hire-Purchase finance

Leasing Finance: A lease is a contract between the owner (lessor) and the user (lessee). There is various type of lease viz. operating lease, finance lease etc. In terms of lease agreement the lessor pays money to the supplier who in turn delivers the article to the lessee. The lessee (hirer of the article) makes periodical payment to the lessor. At the end of lease period the asset is restored to the lessor. Commercial banks in India have been financing the activities of leasing companies, by providing overdraft/Cash credit account/Demand loan against fully paid new machinery or equipment by hypothecation of security. The repayment should be from rentals of machinery/ equipment leased out.  The maximum period of repayment is five years or economic life of the equipment whichever is lower. The financier bank is allowed for periodical inspection of the asset. Lease contracts are only for productive purpose and not for consumer durable. 

Hire-Purchase finance: Hire-Purchase transactions are very similar to leasing transactions. In hire–purchase agreement, at the end of the stipulated period, the hirer (lessee) has  options  either  to return the asset to leasing company while terminating the agreement or  purchase the asset upon terms set out in the agreement  In terms of  leasing agreement the ownership continues to remains with the  Leasing company(Lessor). Since hire-purchase finance takes place predominantly in automobile sector, banks have started direct finance to transport operator as the nature of advance being classified as priority sector lending.

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