Difference between lease finance and hire purchase with Importance of Leasing

Q. What is the difference between lease finance and hire purchase?

The main points of distinctions between finance and hire purchase are as follows:

1) In a lease finance property in the goods owner transfers the right to use the property to another party for a period of time in return of periodic payments. Whereas in hire purchase the property in the goods passes to the hirer upon payment of the last installment.

2) In lease finance a contract under which one party, The Lessor (Owner) of an asset agrees to grant the use of that asset to another, The Lessee (user), in exchange for periodic rental payment. But in hire purchase the position of the hirer is that of a bailee till he pays the last installment.

3) In a lease finance, It is a contractual agreement between the two parties whereby one acquires the right to use the property and the other who allows the former the right to use his owned property. But in case of hire purchase, the hirer may, if he so likes, terminate the contract by returning the goods to its owner without any liability to pay the remaining installments.

Q. Describe the importance of Leasing for developing country.

In the case of a developing country, lease from is beneficial for importing equipment like Ships, aircrafts etc. instead of borrowing. This will protect a better image of a nation than a borrower with no pressing service charges for unpaid loans.

Government should make favorable laws so as encourage availability of lease finance for importing plant, machinery and equipment by the private sector companies to accelerate the pace of industrialization and self-reliance in production of capital goods.