What is the difference between a financial lease and a hire purchase

What is the difference between a financial lease and a hire purchase Introduction: The World of Financial Agreements Hello everyone, and welcome to our video. When it comes to managing finances, businesses often encounter various agreements and contracts. Today, we'll be focusing on two such arrangements: financial leases and hire purchases. While they may seem similar at first glance, there are crucial distinctions that can significantly impact a business's financial strategy and operations. Defining the Terms: Financial Lease and Hire Purchase Before we dive into the differences, let's establish what each term means. A financial lease is a long-term agreement where the lessee (the business or individual using the asset) pays regular installments to the lessor (the owner of the asset) for the use of the asset. At the end of the lease term, the lessee typically has the option to purchase the asset at a predetermined price. On the other hand, a hire purchase is an arrangement where the hirer (the business or individual) pays installments to the owner (the hire purchase company) over a fixed period. Unlike a financial lease, ownership of the asset is transferred to the hirer once all payments, including any residual value, are made. Ownership and Accounting: A Fundamental Distinction One of the key differences between a financial lease and a hire purchase lies in ownership. In a financial lease, the lessor retains ownership throughout the lease term, while the lessee has the right to use the asset.