Leasing: advantages and disadvantages, main function, classification, tips and tricks

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Leasing as one of the forms of entrepreneurship is an investment of capital in the purchase of tangible assets with further transfer to use by another person for profit. The service is related to lending and leasing with the advantages and disadvantages of leasing in relation to the named forms of financial practice.

Functions of leasing relations

The general functions of leasing relations are determined from several types of interaction between all parties to a long-term lease with a future transfer of ownership.

The financial function is expressed in the tangible form of lending to the tenant - in the provision of special equipment, a car, a land plot, any other asset.

The production function refers to firms that solve problems through the temporary operation of equipment provided on loan. At the same time, there is no need to purchase expensive equipment, and full-service leasing includes the supply of labor and raw materials, insurance andmaintenance.

The sales function is an expansion of the leasing relationship market. Large companies and small entrepreneurs, individuals are involved in the sphere of leasing. Car leasing has become widespread, the pros and cons of which are obvious - owning a car with rent paid before the date when the amount of payments covers its cost.

The function of receiving benefits is to reduce taxable income by transferring payments to the cost of goods and not having them on the user's balance.

Types and forms of leasing operations

Composition of participants in leasing relations, the volume of services, the nature of payments and the market sector determine their classification. The owner, who leases his property, carries out direct leasing, and the intermediary between the seller and the buyer - indirect. Leasing is pure, when the tenant assumes the responsibility for servicing the goods entrusted to him, and with a set of services, when the lessor is responsible for the service.

Financial services are provided both in the domestic and international markets, forming a conformity of forms. Payments are paid in cash or in products produced on the leased equipment, the combination is a mixed lease. The advantages and disadvantages of the compensation form for the return of the cost of equipment are the preservation of cash, but the loss of goods given for the cost of production.

Pros of leasing for tenants

Brieflythe advantages and disadvantages of leasing are interpreted as the free temporary operation of fixed assets or goods with a gradual payment of their value in the absence of rights to the received material values. The advantage of this form of financial services is the partial payment for the purchased property with its subsequent long-term lease, at the end of which the lessee becomes the owner of the object of the contract.

The goods are land, cars, real estate, special machinery and equipment - everything that has a high cost. The duration of the contract is several years, the higher the price - the longer the lease.

Lessees are individuals and businessmen, depending on the purchased goods and the specifics of the transaction. The pros and cons of leasing a car or an apartment are of interest to an individual, and a lease with the prospect of buying out expensive factory equipment is interesting to a businessman.

Disadvantages of leasing for tenants

The leasing form of buying assets or property is not ideal. Often this is due to legislation that regulates such financial services incompletely or contains inaccuracies. In particular, work with non-profit organizations acting as a tenant on a charitable basis is limited, although the owner of the property is able to profit from such transactions.

The disadvantages of leasing, like the advantages, affect the activities of both parties. The delay in the return of VAT from budgetary funds hindersthe rapid growth of the profit of the leasing company and contributes to the reduction of the number of its assets. This slows down the development of the market, having a direct impact on small businesses, progressing through small but constant capital investments.

Car leasing for individuals

The Russian car leasing market is mainly of interest to entrepreneurs who buy trucks and special equipment that cannot be obtained with a regular loan. But the financial services market is developing rapidly, opening up wide opportunities for obtaining goods in other ways than classic banking offers. Individuals are interested in this segment due to the absence of a down payment when renting a vehicle, which cannot be said about a bank loan for a car. Even if there is such, the total cost of all expenses for the purchase and operation of a car is less in the first case, and these are not all the pros and cons of a car on lease.

Advantages of car leasing over credit

Compared to car loans, leasing has several advantages. An important plus is the total reduction in the amount of payments and additional costs. The owner of the vehicle for the entire rental period is the lessor, who buys an expensive CASCO policy, although in general the responsibility for safety is shifted to the lessee. It is impossible to get a car loan from a bank without buying insurance. The loan is also issued at a higher interest rate, but liquidationthe cost of a car in leasing is high and amounts to 80%.

When making an agreement, the tenant receives a car registered with the traffic police, and if necessary, returns it to the owner and chooses a new one. On the road, in case of unforeseen situations, the tenant receives maintenance from the partners of the leasing company.

The entrepreneur gets more benefits, and the pros and cons of leasing are more noticeable compared to services for individuals. The purchase of special equipment is impossible at the expense of a bank loan due to the lack of such programs. Leasing allows you to purchase trailers, combines, tractors, trucks to expand the business with a debt deferment, directing the released funds to increase the profitability of the enterprise. Such a scheme for the purchase of equipment is typical for companies with small start-up capital and starting a large project.

Disadvantages of car leasing

Purchasing CASCO and the associated costs of purchasing a car are the undoubted advantages of leasing a car, and the disadvantages of such a financial scheme are not obvious. The cost of car maintenance under the affiliate program, evacuation, insurance and registration of the vehicle are included in the resulting leasing amount, being hidden payments. Fines for violations are paid by the client, but they come to the owner. Unpaid fines are deducted from the monthly installment.

Recommendations for choosing a leasing company

When choosingIt is important for companies to pay attention to several things. First of all, it is the initial cost of the goods - the less, the better. Operating costs are assessed before the rental of the property. In some cases, they turn out to be large, so it is logical to choose a company that provides leasing with a set of services. An important parameter is the liquidation value, thanks to which it is possible to return part of the funds spent at the end of the contract. Calculated empirically after studying the sales market for the selected category of used goods.

Various leasing organizations add additional services to the agreement, paid by the tenant. Their number and cost vary. Additional services should be agreed if the tenant is not able to ensure the normal operation of the leasing object on his own. You need to pay attention to the terms of the contract, marked with asterisks and having footnotes. You should always remember the advantages and disadvantages of leasing, sometimes getting a loan is easier and more profitable. In particular, this applies to cases where the offer of the bank implies the absence of a down payment or income statement.

Leasing market problems

The main problem of the leasing market is real estate. Demand for rental apartments with a buyout is high. This generates an offer, but the legislative framework treats this service incompletely. The missing procedure for registration of ownership of real estate under leasing is a flaw that needs to be corrected. The tax authorities also do not leave tenants alone, challengingaccounting procedure. Leasing is provided to individuals with a clean financial history, a tarnished reputation will be a stumbling block when applying.