Terms associated with a car lease!

By BankBazaar | July 12, 2012

In terms of car financing a lease is a legal contract between the owner of an asset (the car) and its user (the Lessee) for the hire of that asset. While the ownership still rests with the lessor (Financing Institution) the right to use the asset (car) is given to the lessee for an agreed period of time (loan tenure) in return for periodic rental payments (EMI) by the lessee to the lessor. Currently the various kinds of lease agreements are offered by banks as well as NBFCs and availed by many people in order to save taxes. Here are the legal explanations of the various terms that are used in such lease agreements.

Back-loaded lease: These are the kind of lease agreements where the monthly payouts are higher towards the end of the repayment tenure.

Balloon lease: These are the kind of lease arrangement wherein the installments are lower in the beginning and higher in the middle coming down again towards the end of the repayment tenure.

Front-loaded lease: These kinds of agreements have the highest installments in the beginning which reduce subsequently as the repayment progresses.

Lease Rental: This is the amount that the lessee or the user of the car needs to pay the lessor or the financing agency in lieu of the car’s value which is paid for by the latter.

Lease Rate: This is the simple annual interest which is applicable on the minimum lease rentals and is different from the interest rates applicable for a lease loan that is compounding in its effect.

Lease Term: This is the period of the lease agreement and may or may not correspond to the time required to pay back the entire cost of the car purchased through the lease arrangement.

Lessee: In this casethe user of the leased car is called as the lessee and lessor (finance company) is the owner of the asset. Earlier as per the Motor Vehicles Act of 1930, it was the lessor who was considered as the real owner of the car and was hence held responsible for any criminal proceedings initiated due to negligent use of the vehicle and was thus was liable for any criminal action and other offences. However this provision was reversed under the Motor Vehicles Act, 1988 vide which even though the legal ownership still rests with the lessor, it is the lessee who shall be regarded as the owner for all purposes as described above under the Act.

Lessor: Under the typical lease agreement of a car, the finance company is the legal owner of the asset and is thus known as the lessor by the provisions of the Motor Vehicles Act, 1988 (Section 51). Additionally where the car is financed under a hire-purchase, lease or loan agreement, the lessor is mentioned as the financier for all practical purposes.

Being familiar with the various terms used in such agreements puts the lessee in a better position to make informed decisions.

All information including news articles and blogs published on this website are strictly for general information purpose only. BankBazaar does not provide any warranty about the authenticity and accuracy of such information. BankBazaar will not be held responsible for any loss and/or damage that arises or is incurred by use of such information. Rates and offers as may be applicable at the time of applying for a product may vary from that mentioned above. Please visit www.bankbazaar.com for the latest rates/offers.

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