Question

When is a leveraged lease more appropriate for a company to use over a direct financing or operating lease options?

Answer 1

Answer :

Leveraged Lease:

A lease in which a bank or other financial institution provided the lessor (the party granting the lease and retaining title to lease gold) with credit, which the lessor then uses to finance lease.

A leveraged lease is usually used when an entity does not have the funds to buy the asset outright nor do they necessarily want to keep the asset for a long-term.

A leveraged lease allows a lesse to obtain a loan for the leased asset's value during the lease term and repay the loan over the life of the lease.

Direct Financing :

It is a method of financing where borrowers borrow funds directly from the financial market without using a third party service, such as financial intermediary.

Operating Lease :

An operating lease is a short term lease or contract in which the lessee agrees to rent an asset from the lessor and the lessor retains the right or ownership.