Leasing is similar to other forms of equipment financing. However, it has distinct nature from the other methods.
i. Hire Purchase – the assets are delivered to a person who agrees to make periodical payments by way of hire with an option to purchase. There are two transactions i.e. Hire and purchase combined into one. A lease is technically a hire contract without more. So when a lease contract gives the lessee an option to purchase, it takes the transaction outside the purview of a lease to hire purchase. Thus, while all equipment leases may be described as contract of hire, not all contracts of hire may be regarded as leases. Therefore, the key difference between a lease and hire purchase is the absence of ”purchase option” in a lease.
It must be noted that, finance lease has same characteristic with hire purchase in that the intention of the lessee is to buy the asset at the end of the lease. However, the lessor cannot expressly state this intention by giving “purchase option”. To avoid the pitfall of the transaction, being construed as hire purchase, it utilises other legal techniques to meet the intention Fortunately, the Equipment Leasing Act (ELA,2015) has made the position clearer and provides further relief in this regard.
ii. Conditional sale is a transaction which the purchaser agrees to buy and take possession of goods under which the purchase price or part of it, is payable in instalments. There is an absolute contract of sale and the buyer can pass a good title. In a lease, the lessee, does not have proprietary interest as title belongs to the lessor
iii. Credit Sale is an agreement where title in the asset passes immediately but where the purchase price is left outstanding as a loan and is repayable over time with interest. Again, title in a lease resides with the lessor.
iv. Loans – are granted in money lending transactions and in a number of other transactions which enable the recipient of the loan to buy goods. Lenders are not necessarily the owner of the asset purchased through loan unlike in a lease where the lessors are owners.