Leasing, it’s Interest and the Implied Interest Formalities


Leasing is one of the terms that are used commonly throughout the world for renting out one’s property. The conditions pertaining to leasing varies from country to country. Leasing and Tenancy are generally the two kinds of renting of property. Leasing is generally done for a period of longer duration and leasing has a lot of constraints like minimum a year or two whereas a person can rent a place for 2 months also.

It is not laid down anywhere that lease is meant for a longer duration whereas rent is meant for a shorter duration and such.  Leasing and Renting are chosen by the owner of the property depending upon his own usage.

Why the Concept of Interest in Leasing?

The process of leasing involves the payment in bulk before occupying the property. The payment made in bulk will have to be returned to the lessee (the one who used the property for a while) after the completion of the duration specified.

Why Is It Implied Interest?

Since this type of interest methods are not mentioned explicitly, it is named as implied interest. It is more or less similar to that of the Simple Interest Calculation methods that are used in the banks. When the principal amount is returned, the interest also is retuned along with it as a one-time payment instead of that in Compound Interest where each and every year has a different interest rate. Lease Implicit Interest Rate Calculation has to be done as per the norms of the country.

This sort of return of payment method holds no profit for the lessor (the one who leases the property) but holds ample advantages to the one who uses the property (lessee). Thus, some amount of interest levied will be of a little advantage to the lessor.