Various types of lease finance are as follows:

(i)    Operating Lease. In an operating lease, the lessee requires the right to use an asset for a few moths, i.e. for a short period. It is a suitable arrangement where assets are likely to become obsolete because of new technology. For example, models of computes change quickly because of new developments. Operating lease is more costly for the lesser as rentals are higher. Such a lease may be renewed after the period of its expiry. The lessee does not get the option to buy the asset.

(ii)    Financial Lease. It enables the lessee to retain the asset after the end of the stipulated basic period. The length of the basic term depends on the economic life of the asset which is shorter than the expected life of the asset. Financial lease in suitable for expensive assets and it covers a long period. The lesser fixes the rentals in such a manner that he is able to recover his investment plus normal profits during the lease period.

(iii)    Sale and Lease Back. In this case the owner of an expensive asset may sell it to the leasing company and get it back on lease. Sale and lease back arrangement allows the lessee to overcome liquidity problem and also use the asset. The lessee has to pay monthly rentals during the agreed period.

(iv)    Leveraged Lease. here, the lesser buys the asset to be leased by using borrowed funds or loans form a  lender. This debt amount is serviced out of lease rentals. In fact, there are three parties, the lesser, the lessee and the lender which might be a commercial bank or a financial institution. Leveraged lease is suitable in case of very large assets like ships.

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