Benefits And Characteristics Of Leasing

Course : Managerial Finance Lecture : Marc Credit Hours : 3 Credits Semester Sessions : 3 Semester, 2021/2022 Session Prepared By : Kenzo LECTURE NOTES BENEFITS AND CHARACTERISTICS OF LEASING Leasing or leasing in practice can provide benefits for the parties involved. According to Arthesa and Handiman (2008, p. 254) leasing has several benefits and advantages if compared to other sources of funding, namely: 1. Benefits for the lessee (lessee): a. As an alternative source of financing, leasing companies are not demanding too much additional collateral from the lessee if compared to financing from other parties. Treasures that have been collateral for credit applications can still guarantee cred already exists because of legal ownership rights to capital goods and arrangement of lease payments according to the lessee's income. b. More flexible requirements. Requirements for applying for a lease It's easier to d business with leasing companies in comparison with banking. These requirements are related to the requirements the documents are simpler, the application process is faster and easier connection. But the weakness of This is due to the high interest rates set by leasing company. This is due to the high risk because of the ease in the requirements of these documents. High interest rates are a form of anticipation on the part of the lessor if the worst risk occurs in the future. c. Obtaining rental capital goods with appropriate funding lessee's capabilities. The leasing agreement is more flexible if compared to other financing systems. This is due to because leasing is easier to adjust to circumstances lessee when compared with financing through banking. In the case of installment payments, the amount of the installments paid by the lessee will be adjusted to the lessee's income itself so it can be easily adjusted to value leased capital goods. d. Inflation Protector. The lessee will pay the appropriate rental installments with monetary units that have been determined at the beginning. If one day If there is a decrease in the value of money or inflation, the lessee will not be affected impact in terms of paying off rental costs. e. Ways to obtain assets. To get assets no simply by purchasing the asset with cash. So that with a leasing company that provides rental services use, then lessees who have limited funds can have assets by financing with option rights where at Finally, the lessee can own the capital goods that are rented for use. 2. The benefits received by the lessor (leasing company) are acceptance of interest and administration fees. Generally the interest rate earned higher than bank financing. This is due to because of the high risk borne by the leasing company due to the convenience of guarantees and documents requirements documents. The Leasing Company also earns a fee administration of transactions carried out with the lessee. 3. The benefits obtained for suppliers are: a) Increased sales of goods. Suppliers can improve sale of goods even though the consumer in this case is the party The lessee does not have enough money to make the purchase goods. This is because the payment is covered by the party leasing company first b) Avoid the risk of default. Suppliers avoid the risk of failure pay consumers due to missed installment payments or not running smoothly which could happen. This is caused by goods the capital to be rented out by the lessor has been repaid by the lessor to the supplier. Leasing is different from leasing activities generally. According to Effendy (2015) there are several requirements The difference between leasing and other rental activities is: 1. Differences in leasing objects. The object of the leasing agreement is goods in the form of capital goods such as motor vehicles, heavy equipment, production machines and office equipment. 2. Rental payments are made periodically and within a specified time period determined by the lessor and the lessee. Payment in Leasing agreements can be made periodically, for example over a period of time every month, quarter or six months according to the agreement. This is different from other rental agreements where payments are made usually done once in each agreement. 3. Residual value. In the leasing agreement there is a term called residual value also with residual value. This sis value is calculated annually or as appropriate agreement which will then be reduced by the initial price of the goods. In the end, this residual value will become the value of the goods at the end of the agreement. The residual value is contained in the lessee's option rights to the goods.