Finance Lease

A finance lease or capital lease is a type of lease. It is a commercial arrangement where:

• the lessee (customer or borrower) will select an asset (equipment, vehicle, software);
• the lessor (finance company) will purchase that asset;
• the lessee will have use of that asset during the lease;
• the lessee will pay a series of rentals or installments for the use of that asset;
• the lessor will recover a large part or all of the cost of the asset plus earn interest from the rentals paid by the lessee;
• the lessee has the option to acquire ownership of the asset (e.g. paying the last rental, or bargain option purchase price);

The finance company is the legal owner of the asset during duration of the lease.

However the lessee has control over the asset providing them the benefits and risks of (economic) ownership.