Leasing agreement - what to pay attention to before signing it?

Service Business

The leasing contract is still one of the most popular forms of financing (next to a loan), allowing entrepreneurs to purchase the necessary equipment (usually a car) for the company, which would be difficult to afford with cash. The decision to choose leasing should, however, be preceded by a thorough reading of its rules - because there are situations when this form of financing may turn out to be exceptionally wrong.

Avoid accidents and thieves

At the beginning, it is worth noting that the leasing contract - unlike a loan - is "dependent" on the subject of the contract. In the event that the financed equipment is lost or damaged, the concluded agreement ceases to apply. In addition, taking into account the fact that leasing is the most common way to purchase cars, which in practice are quite likely to be damaged as a result of an accident or be stolen. This is quite a significant disadvantage of the leasing contract for the lessee. Although each such arrangement is insured by the parties, the amount of such insurance may not fully cover the remaining amount due to the lessor. Then the obligation to pay the difference lies with the lessee. Moreover, the lessor may require the other party to immediately pay the outstanding installments.

What to do to protect yourself from such a situation? In practice, the only solution is a properly structured insurance contract. It is possible to obtain a guarantee that in the event of a random event, the insurer will pay the entire sum insured, which should be equal to the price of the equipment indicated on the invoice. Of course, such a guarantee will require additional costs, which will increase the insurance premium.

Do not fall behind with payments and take care of the equipment specified in the leasing contract

In practice, it is not only the loss or destruction of equipment that makes the leasing contract invalid. As a rule, unless otherwise stated in it, even a delay in paying one installment is a sufficient condition for the lender to withdraw from the contract. All he has to do first is to send a request for payment to the lessee with the information that if the payment is not paid within the specified period, the contract will be terminated.

Of course, not every leasing contract is concluded on such rigid terms. The parties may include in it other rules and consequences related to the payment of receivables. However, it should be remembered that all entries must be for the benefit of the lessee.

The lease agreement may also be terminated when the user does not use the leased asset properly. His primary responsibilities include keeping the machine in good condition and using it properly. Similarly, the lease contract may be terminated with immediate effect in a situation where the leased object was used by third parties without the consent and knowledge of the lender.

The lessee should also not make any changes to the equipment for which it has not obtained the consent of the other party. Although the mere fact of making a modification will not automatically terminate the contract, failure to remove the change introduced without the consent of the lessor may have such a negative effect.

As you can see, in some respects the leasing contract can become dangerous for the lessee. As a result of random events, it may turn out that it will be necessary to immediately pay off the entire value of use of the item. Therefore, it is worth considering the conclusion of such an agreement well, and additionally protect yourself against its possible negative consequences.