The concept of Leasing in SL

[Dilan R]

Hi everyone, this is my first thread in the Autolanka forums.

I searched the forums but I couldn't find anything related to this topic so here I am.

I have researched about this topic and I want you experts to comment on my findings.

I am confused about the leasing process that takes place in Sri Lanka. According some articles that I read on the internet, leasing is essentially equivalent to renting. For example, let’s assume that I plan to lease a luxury car for 3 years, we will also assume that it has a sticker price of 150 lakhs at the dealer. According to what I read, the down payment and the monthly installments are calculated based mainly on the depreciation of the car for the span of 3 years that I use it. If the car is 100 lakhs after 3 years, I will have to pay 50+ lakhs for the depreciation, interest and taxes. So in other words I simply can dump the car at the dealer after 3 years and walk away paying the required amount which will be 50+ lakhs, if I really like the car and I want to own it, I will have pay the remaining residual fees which will be 100+ lakhs. I asked whether this is the process involved from my father, he replied saying that the full amount of the car should be paid to the leasing party whatever the leasing period is. So in other words if I agree to the 3 year lease I will have to pay 150+ lacks to the leasing party and I will own the car after 3 years.

I hope you people can understand what I am trying to convince; maybe leasing is a complete different concept from what I have understood, if so please feel free to correct me.

[iRage]

Well the whole notion of leasing is you pay the lessor in installments for the right to use the lessor's asset. What you have described is the general notion of leasing. Yes, if you lease a car in the US, Europe, Japan, etc...at the end of the lease period you can opt to return the car or pay it out right and keep it or simply give it back and get a new car for the same lease amount. In some cases the lessor even maintains the car.

In Sri Lanka....uhh...picture it as the same as above; except, you don't have the option to give the car back to the lessor (well you can but you will be subject to a lot of surcharges) or as the lease option where you choose to keep the car at the end of the period. Thus, you have to pay it out in full during the lease period and take it under your name or whatever you choose to do with it.

 

[Crosswind]

7 hours ago, Dilan R said:

Hi everyone, this is my first thread in the Autolanka forums.

 

I searched the forums but I couldn't find anything related to this topic so here I am.

 

I have researched about this topic and I want you experts to comment on my findings.

 

I am confused about the leasing process that takes place in Sri Lanka. According some articles that I read on the internet, leasing is essentially equivalent to renting. For example, let’s assume that I plan to lease a luxury car for 3 years, we will also assume that it has a sticker price of 150 lakhs at the dealer. According to what I read, the down payment and the monthly installments are calculated based mainly on the depreciation of the car for the span of 3 years that I use it. If the car is 100 lakhs after 3 years, I will have to pay 50+ lakhs for the depreciation, interest and taxes. So in other words I simply can dump the car at the dealer after 3 years and walk away paying the required amount which will be 50+ lakhs, if I really like the car and I want to own it, I will have pay the remaining residual fees which will be 100+ lakhs. I asked whether this is the process involved from my father, he replied saying that the full amount of the car should be paid to the leasing party whatever the leasing period is. So in other words if I agree to the 3 year lease I will have to pay 150+ lacks to the leasing party and I will own the car after 3 years.

 

I hope you people can understand what I am trying to convince; maybe leasing is a complete different concept from what I have understood, if so please feel free to correct me.

 

The answer is very simple. In Sri Lanka, what they call 'leasing' is actually 'hire purchase'. In the financial concept of leasing, the lessor (customer) has to return the asset to the financier but they can come to an agreement of transferring the ownership of the asset to the lessor. In hire purchase, the asset always gets transferred to the customer at the end of the hire period (which is what happens in Sri Lanka).

[iRage]

39 minutes ago, Crosswind said:

The answer is very simple. In Sri Lanka, what they call 'leasing' is actually 'hire purchase'. In the financial concept of leasing, the lessor (customer) has to return the asset to the financier but they can come to an agreement of transferring the ownership of the asset to the lessor. In hire purchase, the asset always gets transferred to the customer at the end of the hire period (which is what happens in Sri Lanka).

lessor is the agent who gives the leasing (the owner).

the customer is the lessee.

but yes...it is more or less hire purchase

 

[Dilan R]

@iRage @Crosswind Thanks Guys. So in other words what my father said was correct, if the car is given back to the lessor i understand that i will have to pay surcharges which will be expensive. When the time comes i will do more research, for now i guess i have a basic idea of how leasing works in Sri Lanka.

[Crosswind]

3 hours ago, iRage said:

lessor is the agent who gives the leasing (the owner).

the customer is the lessee.

but yes...it is more or less hire purchase

 

Thanks for the correction bro.... I always get confused with those two words.

[Quiet]

Actually in the lease agreements the rentals are designed to cover the purchasing cost to the financial institution. However it really is not a hire purchase. There is a final payment that has to be made by the lessee to lessor as purchase consideration before transfer of the vehicle. Normally in local banks that consideration is a token value of Rs.1000 to Rs.6000 which they recover from you by the end of lease period, Although im not that sure the regulation is that the minimum purchase consideration should be 20% of the asset value which is not strictly implemented.

[Dilan R]

Thanks @Quiet This leasing concept is way over my understanding.

[ShintaroX]

There are companies that offer the type of product described below if you are interested in it; the place down Park Street for example.

On 11/16/2016 at 11:44 PM, Dilan R said:

Hi everyone, this is my first thread in the Autolanka forums.

 

I searched the forums but I couldn't find anything related to this topic so here I am.

 

I have researched about this topic and I want you experts to comment on my findings.

 

I am confused about the leasing process that takes place in Sri Lanka. According some articles that I read on the internet, leasing is essentially equivalent to renting. For example, let’s assume that I plan to lease a luxury car for 3 years, we will also assume that it has a sticker price of 150 lakhs at the dealer. According to what I read, the down payment and the monthly installments are calculated based mainly on the depreciation of the car for the span of 3 years that I use it. If the car is 100 lakhs after 3 years, I will have to pay 50+ lakhs for the depreciation, interest and taxes. So in other words I simply can dump the car at the dealer after 3 years and walk away paying the required amount which will be 50+ lakhs, if I really like the car and I want to own it, I will have pay the remaining residual fees which will be 100+ lakhs. I asked whether this is the process involved from my father, he replied saying that the full amount of the car should be paid to the leasing party whatever the leasing period is. So in other words if I agree to the 3 year lease I will have to pay 150+ lacks to the leasing party and I will own the car after 3 years.

 

I hope you people can understand what I am trying to convince; maybe leasing is a complete different concept from what I have understood, if so please feel free to correct me.

 

 

[Dilan R]

Thanks @ShintaroX 

[Quiet]

the product you are referring is not financial leasing, its operating lease. There are two types of leases. 1. Finacial leases and operating leases. 

 

[Dilan R]

@Quiet

29 minutes ago, Quiet said:

the product you are referring is not financial leasing, its operating lease. There are two types of leases. 1. Finacial leases and operating leases. 

 

From what i understand operating lease is equivalent to hire purchase, is that true? Thank you for dedicating your time on this thread, i learnt a lot from this short discussion.

[Quiet]

not really. Operating leases does not have a buy back option while hire purchase gives a option of buy back and in a buy back scenario the financial institution cannot charge more than 20% of future interest (not  sure about the figure - you may have to go through the hire purchase act and leasing act)

Edited November 18, 2016 by Quiet

[Dilan R]

20 hours ago, Quiet said:

not really. Operating leases does not have a buy back option while hire purchase gives a option of buy back and in a buy back scenario the financial institution cannot charge more than 20% of future interest (not  sure about the figure - you may have to go through the hire purchase act and leasing act)