What are the disadvantages of leasing?
The primary disadvantage is cost. Leasing is often a more expensive alternative. The actual cost difference between leasing and ownership depends on many factors and varies from case to case.
Another disadvantage is the loss of the asset's salvage value. In real estate, the loss can be substantial. A lessee may also have difficulty getting approval to make property improvements on leased real estate. If the improvements alter the property substantially or reduce its potential range of uses, the lessor may be reluctant to permit them.
In addition, if a leased asset becomes obsolete or if the capital project financed by the lease becomes uneconomical, the lessee may not cancel the lease without paying a substantial penalty.
In bankruptcy, lease payments must be made, whereas interest and principal payments are suspended.
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