LEASE FINANCE AND HIRE PURCHASE
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Free sample — 8 of 66 rapid-fire Q&A cards.
What is the fundamental distinction between a lease and a hire purchase agreement?
In a lease, ownership of the asset remains with the lessor throughout the contract period, whereas in hire purchase, ownership transfers to the hirer upon payment of the final instalment.
What is a 'dry lease' in the context of asset leasing?
Lease without crew, fuel or maintenance included by lessor.
Who is called the 'lessor' in a lease finance transaction?
The lessor is the owner of the asset who grants the right to use the asset to the lessee in exchange for periodic rental payments, retaining legal title throughout the lease term.
What is meant by the 'flat rate of interest' in a hire purchase agreement?
Interest calculated on original principal throughout the entire tenure.
What is meant by a 'finance lease' as distinguished from an 'operating lease'?
A finance lease transfers substantially all risks and rewards of ownership to the lessee and is non-cancellable, whereas an operating lease is short-term, cancellable, and maintenance is typically borne by the lessor.
Who bears the risk of obsolescence in an operating lease?
The lessor bears the risk of asset obsolescence.
Under hire purchase, what legal right does the hirer possess over the asset during the agreement period?
The hirer has the right to use and possess the asset but does not hold legal ownership; the title vests in the owner (hire vendor) and transfers to the hirer only upon payment of the last instalment.
What is the term for the minimum lease period during which neither party can cancel the lease?
Non-cancellable period or the primary lease term.
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