Lease
BeginnerA lease is a contract that gives one party, the lessee, the right to use an asset owned by another party, the lessor, for a set period in exchange for regular payments.
Leases are common for property, vehicles and business equipment. Instead of buying an asset, the user pays to use it for an agreed time, after which it is returned, renewed or, in some leases, bought at a set price.
For example, a person might lease a car for three years at 350 a month. At the end of the lease, they return the car, lease a new one or buy it for a pre-agreed amount.
Leasing has advantages. It requires little or no upfront payment, lets users access newer equipment and may shift some maintenance and resale risk to the owner. Businesses often lease to preserve cash for other uses.
The drawbacks are that the lessee does not build ownership, may face limits such as mileage caps or restrictions on alterations, and can pay more in total than buying outright. In company accounts, most leases are now recorded on the balance sheet as a right-of-use asset and a lease liability, showing the obligation clearly.
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