What is leasing in simple terms?

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

At present, many foreign words have entered our everyday speech: leasing, marketing, coaching and many others. And that's okay. What is leasing (derived from the English word to lease, which translates as "rent") in simple terms? We will try to explain to those who are interested in this issue. In short, leasing is the rental of housing, equipment or vehicles with the possibility of repurchasing it in the future. That is, it is such a financial instrument that perfectly combines two possibilities - long-term lease and purchase. Read more about all aspects of this issue in the article.

Essence

Don't know what leasing is? Everything is very simple. The leasing company, having acquired certain property from the seller (for example, real estate, equipment or vehicles), transfers it for a long period of time to the use of the consumer (that is, to a third party in this chain).

Important! It is the client (that is, the consumer of the financial service) who chooses the seller.

During the entire term of the leasing agreementthe client (or the lessee) constantly and systematically makes payments, in no case missing them (otherwise he may be left without goods). If by the end of the contract, the consumer pays in full the cost of what he rents; as well as a certain amount of money (which is stipulated earlier and fixed in the document) to the leasing company for the opportunity to operate it, then the property becomes the property of the lessee legally.

Such a financial instrument is extremely beneficial for small firms. In leasing, the initial payment for the possibility of using the leased property is about 20-30% of its total value. Moreover, the organization involved in leasing, takes part of the costs for itself. After 5 years (it is for such a period that contracts are most often concluded), this small company becomes the sole and full owner of the property it rented.

How is leasing different from a simple lease

What is rent? You temporarily use some property belonging to the landlord for a certain amount specified in the contract. Make payments every month, but are exempt from the down payment. At the end of the lease term, you simply return the leased item to its owner and that's it.

What is leasing, then? This is also a kind of lease, only with the right to buy out property or acquire it in stages in full ownership.

Important! First, leasing without a down payment is impossible. In-secondly, the lessee can become the full owner of the leased property only after its full redemption.

How is leasing different from a loan

Both in the case of leasing and in the case of a loan, in order to receive property for use, the consumer must make regular payments previously agreed and recorded in the document, which will eventually cover the full cost of the subject of the contract. This is what unites them. But there are also differences:

• By purchasing this or that property on credit, the borrower immediately becomes the owner overnight. When leasing, during the entire term of the agreement, the object continues to remain the property of the lessor and can change ownership only after a certain period of time.
• In the case of a leasing transaction, no collateral is required. Credit cannot boast of this. In addition, a long installment plan for leasing significantly reduces the amount of payments and thus makes it possible for the consumer to manage the assets of his company in an optimal way.

• A credit organization gives money to a borrower to purchase certain property. The lessor himself acquires the subject of leasing and transfers it to the use of the consumer with the right of subsequent redemption.
• The cost of servicing and maintaining the subject of lending is fully borne by the borrower. In the case of leasing, all such activities can be taken on "their shoulders" by the lessor. Or maybe not take it - it's how you agree.
• The package of documents for obtaining a loan significantlylarger than with leasing. Yes, and the down payment is much higher.
• The interest rate on the loan and the final cost of the property (compared to the real price) are much higher than in a leasing deal.

Note! The total cost of the leased asset is the sum of the real price and the cost of maintenance.

Varieties of leasing

Depending on what actions the leasing transaction ends with, there are two types of it:

• Financial. The essence of this type lies in the fact that the consumer undertakes, at the end of the lease term, to redeem the leased asset at a certain price specified in the contract. That is, to become its full and sole owner. As a rule, the property costs the lessee at the residual value, which is obtained by deducting the rent payments already paid from the total cost.
• Operational. In this case, it is understood that the lessee pays not for the leased asset itself, but exclusively for its lease. At the end of the contract, the property is returned to the lessor.

There are three types of financial leasing:

• Partial. In this case, it is the lessee who pays all the costs associated with servicing the leased property.
• Full. In this case, the lessor bears all the costs associated with servicing the leased object.
• International (the agreement is concluded by companies from Russia and other countries) or domestic (the parties to the leasing transaction are onlyRussian enterprises).

For individuals

What is leasing for individuals? In short, this is a financial lease, in which an individual can exercise either the right to buy out or gradually acquire an object into ownership. And if in more detail, then it looks like this:

• .
• The request of an individual is considered by the company and an agreement is concluded with him. According to the terms of the agreement, the lessor acquires the property indicated by the lessee, and then transfers the object to the use of the citizen for a certain fee and for a specific period.
• At the end of the transaction, an individual can either buy out the leased asset at the residual value, or return it to the lessor.

Everything is very simple and accessible. That is, it turns out that leasing for individuals involves the entry of any citizen of Russia (if he wishes) into leasing legal relations, provided that he complies with all the terms of the contract.

Documents required to apply for leasing for individuals

List of required documents:

• An identity document, that is, a civil passport and a copy of it (all pages without exception).
• Questionnaire completed without errors.
• Second identity document with a photo available (for example, a passport).
• Certificate indicating sources of income (for example, an employment contract or a copy of a work book).
• A document indicating the total amount of income for a certain period (for example, a certificate of 2 personal income tax).

Note! First: in leasing legal relations, the age of the client does not matter. Secondly, in the case of such a transaction, the risks of the lessor are reduced to zero, since in case of non-payment, the lessee is simply denied rent, and the property remains in the property of the service provider in any case.

Leasing for a legal entity

Leasing for legal entities is nothing more than a legal relationship between a company and a leasing organization that provides equipment, vehicles and objects on a long-term lease with the right to buy them in the future.

This is a very convenient financial instrument that allows you to quickly, without diverting the main working capital, acquire certain property, thereby reducing the tax burden. It is this factor that is decisive when choosing bank lending or leasing.

Required documents for drawing up an agreement for a legal entity

When drawing up a leasing agreement, the package of documents includes copies of the balance sheet for the last five reporting periods (to be more precise, quarters) with a mandatory mark of the Tax Inspectorate, an extract from the Registershareholders (if it is a joint stock company), as well as copies of the following documents:

• certificates with the exact indication of the company's open accounts;
• certificate of registration with the tax authority;
• civil passports of managers, chief accountant and all those who have the right to sign documents;
• state registration certificates.

Advantages of leasing for legal entities

When concluding an agreement with a leasing company, legal entities have a lot of advantages:

• It does not require large financial outlays at a time.
• Very often, service providers offer good discounts for leasing.
• Production capacity is rapidly being upgraded.
• You can count on the help of service providers in terms of customs clearance of leased machines or equipment, as well as their registration.
• A fairly flexible system of agreed payments that takes into account many business features (for example, its seasonality).
• The tax burden is being optimized by reducing the taxable base.
• The service provider provides warranty service for a car on lease, equipment or machinery on lease.
• After the expiration of the agreement, the lessee can either return the property to the service provider, or redeem the leased object of leasing, or exchange it for a similar, but only new one. That is, the consumer has three options for how to deal with the object.

What is a contract

Any contract fixes the main points of interaction between the parties (in our case, these are the lessor and the lessee). This document must include the following items:

• Details of the parties to the transaction and contact numbers.
• Full description of the subject of the transaction.
• Duration of a finance lease with exact dates.
• Procedure for making payments and payment amount.
• Obligations of the parties, that is, the lessor and the lessee.

• On what conditions will the property be returned or redeemed at the end of the transaction.
• In what case is it possible to terminate the contract.
• Additional conditions that depend on what exactly is the subject of leasing.
• Pen alties.
• Date of signing the contract and signing (with a transcript) of each of the participants.

Important! The signed leasing agreement must be registered with Rosreestr.

Subtleties of vehicle registration

When leasing a car, the following points are fundamental:

Initial (advance) fee. It must be paid in the name of the lessor even before the transfer of property to the lessee. This should be fixed in the contract. The amount can be about 50% of the value of the leased asset. If the consumer pays a large amount, the tax authorities may re-qualify the leasing agreement for a sale and purchase agreement (with installments forpayments) with all the ensuing consequences

Important! The offer with zero upfront payment should alert you. This is extremely rare.

• Term of the financial lease. It can be 1-5 years.
• The procedure (that is, the schedule) for making monthly payments. Their size, as a rule, is about 5-6% of the total price of the vehicle.
• Determination of the residual value of the property. It can be 70-80% of the price of the car.
• Operating expenses (that is, for transport tax, current vehicle repairs, its technical inspection, as well as traffic police fines). All this can be shouldered by the lessee. If these costs are paid by the lessor, then the cost of maintenance will be added to the total cost of vehicles.
• Restrictions associated with certain actions in relation to the subject of leasing. This refers to a ban on the departure or export of vehicles abroad without prior approval and registration of the vehicle as an inheritance or pledge.
• Withdrawal of the subject of leasing. This can happen at any time (of course, during the period of the leasing agreement) if the contractual terms are violated to some extent. Only this way and nothing else. Yes, car leasing is a no-compromise business.

Note! In case of withdrawal, there will be no proceedings. Don't even wait. The vehicle is simply removed. Moreover, the return of already paid amounts is not provided.

Possible pen alties. They aremay follow in case of damage to the property of the lessor. And rightfully so

Car leasing as a financial instrument has been known for a long time. But, oddly enough, they were mainly used by legal entities. According to many specialists of the automotive market, now is the time when individuals begin to enter into leasing legal relations. Why not? Moreover, car leasing for individuals has many advantages.

Subtleties of registration of real estate in leasing

This service is just beginning to gain popularity. Although earlier the law did not prohibit the use of real estate as the subject of leasing (for example, a cottage outside the city, an apartment or even non-residential premises). Moreover, the cost of the object can reach up to 50 million rubles, and the term of the contract can be ten years. Currently, the relevance of leasing real estate is associated with the fact that it has become available to individuals. Life does not stand still.

Banks began to offer people leasing for housing, the procedure for registration of which is not much different from a standard contract. To understand what real estate leasing is, let's look at the algorithm of actions in such legal relations:

• Consumer finds suitable property.
• The bank, based on the application from the client, purchases housing for its own funds and transfers it to the lessee on a financial lease.
• After the agreement expires, the consumer buys the property at the residualcost.

Important! Return of property can be made only in case of financial insolvency of the lessee. In case of such situations, two contracts are initially concluded with the client: one for the purchase of housing with a deferred payment and the second, which provides for a long-term lease of real estate and with its purchase in the future.

In closing

Leasing equipment, vehicles or real estate, as opposed to bank lending, is a fairly effective financial instrument that allows you to develop your business. With it, you can expand production capacity and introduce new technologies into production. Of course, in such legal relations there is a certain specificity of accounting leasing entries, which fully depend on the terms of the contract.