A leasing system is a financial arrangement where one party (the lessor) allows another party (the lessee) to use an asset (e.g., vehicle, equipment, property, or machinery) for a specified period in exchange for regular payments (lease rentals), without transferring ownership.

Key features:

  • Ownership: Remains with the lessor.
  • Duration: Fixed term (usually 1–5 years for cars/equipment, longer for property).
  • Payments: Monthly or periodic, often lower than loan installments.
  • End of lease options (depending on type):
    • Return the asset
    • Renew the lease
    • Purchase the asset (at residual value in finance leases)

Main types:

  1. Operating Lease – Short-term, like renting (e.g., most car leases); asset returned at end.
  2. Finance/Capital Lease – Longer-term, lessee effectively pays off most of the asset’s cost and may own it at the end.