How is collateral treated differently between a true lease and a secured loan?

In the context of leasing and secured transactions, it is important to understand the treatment of collateral under a true lease compared to a secured loan. In a true lease, the lessor retains ownership of the leased equipment, meaning that the equipment itself is not regarded as collateral in the same way it would be in a secured loan arrangement.

In a secured loan, the borrower uses the asset as collateral to secure the loan, meaning the lender has a security interest in that asset. If the borrower defaults, the lender can take possession of the collateral. However, in a true lease, the lessee does not have ownership rights over the equipment—it is merely using the equipment for a specified period while making lease payments. Therefore, the concept of collateral is not applicable in the traditional sense, since the lessor maintains ownership and control over the asset.

This distinction highlights that in the realm of true leases, the equipment is not considered collateral in the context of securing a debt. This is fundamental to understanding the legal and financial implications of both leasing and borrowing practices.