Operational lease is a process where the owner provides another person the authority to use something without transferring it to their name. It can be anything from a house to a car. In return the owner of the product leased would be entitled to receive payments for as long as the person is using the product. Operational lease is the preferred method by most business as it allows them to save money and gain profit. Another good thing about the operation lease is that it is short-termed. This means that as soon as a person does not require a product, he can hand it back without any consequence. This works really well for the lessee as he does not has to endure the financial burden if the thing is useless to him. The lessee might or might not be responsible for the maintenance of the leased item; this is based on the kind of deal that he has made. Either the lessee has to pay for maintenance and repairs to the leasing authority or he can make the decision of maintain the item himself.
Advantages of Operational Lease
- Equipment/Item can be leased for a short period of time. This might be according to the life of the product in question.
- It is ideal for anyone who is on a tight budget and would like to save money.
- The label of operating expense becomes valid and this isn’t counted as debt which would appear bad on the sheets.
- Tax saving. It is a fact that investing in a product would acquire you to not only pay the cost of the product but also the tax. Operational lease saves you from that.
- The maintenance of the product would not fall on the lessee depending on the kind of lease chosen.
Disadvantages of Operational Lease
- The biggest setback is that a person does not gain ownership of the product. At the end of the lease he would have to return the product even though the lease payments were made.
- If the leased product is required for further use, negotiations would have to be done with the lessor again and this takes a lot of time.
- There would be no financial gain for the lessee even if the product gains financial value.
- The contract, though short term, is binding which means that the lessee would be required to pay even if the need for the product finishes beforehand.