A lease represents an agreement where one party grants another the right to use an asset for a specified period in exchange for periodic payments. Ownership of the asset remains with the lessor (the party granting the lease). A typical example is renting an apartment or leasing office equipment. Finance, conversely, signifies acquiring an asset through debt or equity. The purchaser gains ownership immediately, assuming all associated risks and rewards, and is responsible for repayment of the borrowed funds or providing returns to equity holders. Purchasing a car with a loan exemplifies this approach.
Understanding the contrast between these two approaches is critical for effective financial planning and asset management. Each method offers distinct advantages and disadvantages concerning cash flow, tax implications, and long-term cost. Historically, leasing gained popularity as a way to access assets without significant upfront capital expenditure, particularly beneficial for businesses with limited resources or those needing to keep pace with rapidly evolving technology. Finance, on the other hand, has been the traditional method for acquiring durable assets intended for long-term use and appreciation.
