Accounting terms

Dictionary of all accounting terms





What is Leasing?

Quick definition: leasing, one of the many financing options available, is where an individual or company rents equipment instead of purchasing it for a specified time period in order to save money.

Many small business owners, individuals and other organizations do not have the finances available to purchase necessary but expensive equipment. To alleviate this problem, many turn to mid- and long-term leasing whereby a company will rent instead of purchasing.

In leasing, a company (known as the lessor) will grant the other company (the lessee) the right to use the necessary equipment for a specific period of time in exchange for regular payments.

After the leasing period is finished, the lessee has three choices:

  • purchase the leased equipment at fair market value (or lower, depending on leasing agreement)
  • renew the lease to continue using the equipment
  • return the equipment

Leasing interest rates may range from 6%-16% and the lessee does not own the equipment (compared to an equipment loan where the borrower owns the equipment).

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