Leasing 101
What It Is, How It Works and Why Does It Make So Much Sense?
Ever wonder how businesses can use the latest premium laptops, vehicles, or machinery without buying them? The answer is leasing! Leasing allows you to use a car, an office space, or even a house without owning it.
The leasing industry has a massive $2 trillion print, globally with equipment leasing alone accounting for over 40% of the capital investment in businesses. In India, office leasing emerged as a strong market with a growth of 19% in 2024, reaching 88.52 square feet across major cities. (Source)
Today, we will break down the ABCs of what leasing is and why it is the right choice for your business.
What is Leasing?
Leasing is fundamentally a rental agreement between the lessor (owner) and the lessee (user) wherein the lessor provides the asset (car, machines, tech, house, anything), and the lessee pays a periodic fee to use it.
Example of leasing –
- Businesses lease the latest tech for their employees instead of purchasing them.
- Companies lease office spaces rather than investing in real estate.
- Families lease houses rather than buying.
Top 3 Reasons Why Business Lease Instead of Buying
- Lower Upfront Costs—You don’t need to spend a large sum on the purchase of the asset; rather, you can use the money elsewhere.
- Flexibility – Upgrade assets as per your need and want.
- No Ownership Risks – No more worrying about value depreciation or resale of the asset. You get to reap the benefits without any stress, it’s a win-win.
How Leasing Works
Often, leasing is a very simple three-step process –
- Agreement Setup – The first step for the lessee and the lessor is to discuss, decide and finalize the terms of the contract, the monthly payment schedule and the duration of the contract.
- Usage Period – The lessee begins using the asset while making regular payments on a pre-decided amount against the asset to the lessor.
- End of Lease – At the end of the lease, the lessee has the option to either return the asset, renew the lease or buy the asset at the current market commercial value.
Types of Leasing
There are primarily two types of leasing
Operating lease
- Short-term, flexible
- Best suited for businesses that upgrade frequently
- Example – Businesses leasing new tech every 6 months for their employees
Finance Lease
- Long-term, with the option to own the asset at the end of the leasing period
- Best for assets that are required to be used for years
- Example – Businesses leasing factory equipment for long-term production
Leasing Market Segmentation
The leasing market is broadly segmented into the following categories (Source )
- By Type – Automotive Equipment Leasing, Consumer Goods and General Rental Centres, Machinery Leasing, Lessors of Nonfinancial Intangible Assets
- By Mode – Offline, Offline
- By Lease Type – Close-ended lease, option to buy lease, Sub-vented lease, other lease types
Leasing Market Growth Forecast
The leasing market size is expected to witness a very strong growth trend in the next couple of years. (Source)
Leasing Vs. Buying – Which Save Your Business More Money?
Why Do Smart Businesses Prefer Leasing Over Buying?
- Cost Efficiency – Businesses today are focusing more on financial flexibility and leasing helps them in maintaining asset light balance sheets by reducing the amount of money spent on Capex investments.
- Tech Upgrades – IT leasing allows businesses to stay updated with the latest premium devices.
- Sustainability – Leasing plays a major role in supporting the circular economy model, promoting sustainable living by reducing e-waste.
Conclusion
If you need the latest technology or equipment while avoiding large upfront costs to preserve cash flow, and if you value flexibility more than ownership, then leasing comes out as a strong contender of choice.
It is a smart way to get access to high-value assets without the financial and ownership burden. With over 50% of companies opting for leasing instead of buying, it’s a clear winner in terms of flexibility and cost efficiency.
Looking for cost-effective leasing tech solutions for your business? Check out Employee Device Leasing solution today!