Leases

Leases

Introduction

When it comes to valuable property, there are two choices people have; people can purchase or lease. They could purchase a house and be owners, or they might rent an apartment and stay as a customer there. This task analyzes whether owning a car is preferable or leasing it. The angle here is that an individual normally takes up a car loan if they decide to purchase a vehicle. What this task is going to investigate is; the expense of taking out a loan and all that arises with that as well; and the expense of renting the same vehicle. The way to evaluate these two mechanisms is by using methods that measure both the purchasing and leasing costs. For our task, we questioned a private company about their perspective while purchasing a vehicle, and they took up a car mortgage in the process of acquiring a car.  Such are the details we obtained on the car loan:

1. Bank identity where the mortgage was taken
2. Loan amount
3. Instalment amount
4. The period it will take to repay off the loan
5. Bank interest rate
6. Maintenance and insurance

On the other side, we will additionally gather data on the rental rates for a similar vehicle for the two years. Having the needed knowledge, we will be in a position to decide if the third party did the right thing when purchasing the car, or if it was easier to rent it out.

Summary

The automobile for which a mortgage was granted is the 2018 Megane design. The Renault Company is the manufacturer of the Megane car, this product has been there for approximately three decades, and the Renault Company feels it has been successful. A loan obtained to purchase this car amounts to DHS 41500, and the monthly mortgage payment for the same vehicle is DHS 1296, 11. The comparisons would be seen in the next section of this assessment to determine which option was better.

Theory

Leasing:

A lease is a legally binding contract whereby the owners of a property (lessors) permits the recipient (lessee) to use the property for a span negotiated.

Types of Leases:

1. Operation Lease and Financial Lease-Finance Lease ensures that payments cover the full cost. Operating lease implies renting it during a certain amount of time.
2. Lease Back and Sale – It is among the most successful means of trying to raise money. This is a contract in which an asset owner sells a property and then rents it again from the purchaser.
3. Direct Lease – It is a standard lease. There exist two forms: bipartite lease-two parties are involved, the supplier and the leaser. Tripartite Lease-Three people are concerned, the banker, the supplier and the lesser are included.
4. Individual Investor Lease & Leverage Lease and single investor lease- the latter means, to get a lender and generate capital to acquire a property. Leverage Lease represents collecting money and buying a property.

Leasing advantages:

• A balanced flow of cash
• Improved planning
• Lower capital spending
• Zero chance of obsolescence
• Enhanced use of Leasing Capital

Disadvantages:

• Leasing costs
• Loans
• Zero possession
• Asset management
• Restricted financial benefits

Hire Purchase:

Hire Purchase: This is a form of instalment transaction in which the (hirer) decides over a length of time to cover the costs of the product in various instalments. This contribution includes the sum of the interest and the principle cost of buying an item for the time it is used. After he buys it, the hirer gains ownership of the commodity.

Differences between Hire Purchase and Lease:

• Asset ownership – The person leasing the property does not have the purchase option of the property and get it in his ownership, while an individual hiring the same property has the freedom to buy the property and bring it under his title.

• Duration – The length of the lease for illiquid assets is prolonged, and the length of the hire contract for inexpensive assets is short.

• Deprecation – In the event of a lease, the lessee is entitled to claim it as an expenditure in the books of accounts. In the event of hire purchase, the property is not an expense in the books of accounts.

• Funding scope – Funding is complete at the lease and partial at hire purchase.