What is "financial leasing"? Explain in layman's terms?

Financial leasing is a lease that transfers substantially all the risks and rewards associated with ownership of an asset.

Types of business are mainly divided into: direct lease and leaseback

1, direct lease

Traditional direct lease business involves three parties, lessor, lessee, seller

Example:

You need a gripping washing machine. A store is selling this washer, but you realize you don't have enough money to buy that washer all at once. That's when you see that I'm rich, so you sign a finance lease with me so that I can buy that washing machine and then rent it to you. You just need to pay me rent in installments and you can use that washing machine all the time. When our lease expires, if there is a prior agreement, you can usually get the ownership of this washing machine by paying the residual value of this used washing machine. If there is no agreement, then this washing machine belongs to me.

2. Sale and leaseback

In a sale and leaseback, the seller and the lessee are the same person.

Example:

You need money to spend. You realize you own a grippy washing machine. I'm still the very rich guy. So you sell me the washing machine, I pay you a large sum of money, then you sign a finance lease with me and I lease the washing machine back to you. You continue to keep the washing machine, but you have to pay me rent in installments (the above sale and lease are not sequential, and there is no material transfer of physical objects). After the lease expires, I will sell the washing machine back to you or I will collect it.

An essential difference between financial leasing and traditional leasing is that traditional leasing calculates rent on the basis of the lessee's time of leasing and using the object, while financial leasing calculates rent on the basis of the lessee's time of occupying the financing cost.

It is a kind of adaptable financing method produced by the development of market economy to a certain stage, it is a new type of transaction method produced in the United States in the 1950s, because it adapts to the requirements of the modern economic development, so it developed rapidly in the world in the 1960s and 1970s, and now it has become one of the main financing means for the renewal of the equipment of the enterprises, and it is known as the "sunrise industry". "sunrise industry".

China in the early 1980s after the introduction of this mode of business, more than three decades has also been the rapid development, but compared to developed countries, the advantages of leasing is still far from being played out, the market has great potential.

Reference:

Financial Leasing - Baidu Encyclopedia