Financial market participants have divided many types of leasing transactions into 2 major categories: financial leasing and operating leasing. While in the first case (financial) leasing has essentially replaced car lending, the second type (operational) has taken over most of the long-term lease properties.
Both forms of leasing are focused on meeting the needs, but these needs for each rental recipient is an individual, the financial leasing client helps to reduce the burdensome monthly payment amount (as credit if applicable), and operational leasing enables temporarily operate expensive equipment or techniques (getting any latest technology without the need to buy them).
When operating leasing is applicable
90% of all leasing transactions are financial leasing, as most lessees want to own a used vehicle or other equipment. The other 10% refers directly to operating leasing, in which case the financial product helps maintain the lessee’s required image. Undoubtedly, such a long-term rental will cost more per month than financial leasing, but the customer will be able to get a very expensive equipment or VIP class car for a short period without the need to buy it .
A large proportion of the customers of operating leasing are business elite. The rules of behavior of this social group dictate to them their own regularities, so whatever they do, they try to comply with them. In this case, money is spent on the sophisticated components of bohemian life without regret.
The second group of operating leasing companies are companies that do not have the financial potential to purchase expensive equipment or simply do not want to purchase it in full. Often this is also due to the fact that the leasing objects are only needed by the company for the real life of the company or the lessee simply does not want to increase his assets by the amount of the value of such objects. An example is the use of the latest software, which does not require full redemption.
And the third category of operating leasing customers are companies that want to use expensive items only once . For example: A builder needs a very modern and expensive crane in home construction that will only last for four months. In this case, it is cheaper for the construction company to apply for an operating lease than to purchase the crane completely.
Typical features of operating leasing
Of course, operating leasing is a financial transaction secured by a formal agreement between the lessor and the lessee. How the relationship is formed under the operating lease agreement :
- The period of use of the leasing must be specified in the contract. After the end of the contract, the lessee has no right to use the object anymore.
- Throughout the operating lease, the owner is the lessor.
- The leasing agreement in question must reflect the rights and obligations of both parties.
- The leasing company acquires the object of operating leasing through continuous monitoring of the market with the aim to find out the most demanded objects at the moment. It is strictly forbidden to purchase leasing items at the request of any client.
- If the object of the relationship is not exploitable, the lessee has the right to terminate the contract .
- After the expiry of the lease agreement, the leased object must be returned to the leasing company, ie the lessor.
- The Lessee shall be liable for damages in the event of damage to the Object or any damage of any kind.
How an operating lease is drawn up
The mechanism is relatively simple. An agreement is signed between the owner of the leasing object and the lessee for 1-2 years. After the expiry of this period, the latter must return the subject matter of the contract.
If the operating lease is intended for the receipt of a vehicle for use, the customer may receive several models at the same time. This is often the case when it comes to renewing your fleet on a regular basis . In this situation the scheme of cooperation with the leasing company is simple. You take several cars on an operating lease for 2 years. During this time period, much newer and more attractive car news appears, so at the end of your existing contract you already know what cars will be used in the next period.
If the lessee uses the vehicles in full, the operating lease costs will be fully reimbursed.