From the course: Accounting Foundations: Leases
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User/Customer/Lessee: Pros and cons of a lease
From the course: Accounting Foundations: Leases
User/Customer/Lessee: Pros and cons of a lease
- Owner company owns a piece of equipment. User company wishes to acquire the equipment for use in its operations. One way for user company to obtain the exclusive right to use the equipment is through a lease. Now, every situation is different, but there are four primary advantages to user company of leasing over purchasing, no down payment, avoiding risks of ownership, flexibility, and simplicity. First, let's talk about no down payment. Most debt-financed purchases of property require a portion of the purchase price to be paid immediately by the borrower. This provides added protection to the lender in the event of default and repossession. Lease agreements, in contrast, frequently are structured so that 100% of the value of the property is financed through the lease. This aspect of leasing makes it an attractive alternative to a company that does not have sufficient cash for a down payment or that wishes to use available capital for other operating or…
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