What role does a lessee have in a lease agreement?

The appropriate understanding of a lessee’s role in a lease agreement is not to pay loan interest but rather to make periodic rental payments for the use of the asset. A lessee is the individual or entity that leases or rents an asset, such as a car or equipment, from a lessor, who is the owner of the asset.

The primary obligation of a lessee is to fulfill the terms of the lease contract, which typically include making timely payments as agreed upon and taking reasonable care of the leased item. In most leases, the lessee does not assume ownership of the item; this remains with the lessor. Lessee responsibilities may include maintenance and repair provisions, but these do not involve significant ownership rights. Thus, the role of needing to pay loan interest is not applicable to lease agreements in the same way as it is for a financed purchase.

Understanding the boundaries of the lessee's responsibilities clarifies why payment for the use of the asset, rather than interest on a loan, describes the role accurately.