What is a Finance Lease?
Definition: There are two types of leases; a finance lease and an operating lease.
Features of a finance lease (capital lease)
A type of leasing contract where:
- The lessee will select an asset
- The lessor will purchase that asset
- The lessee will have use of the asset during the lease
- The lessee has to pay a series of payments for the use of the asset
- The lessor recovers a large portion of the cost if not all plus interest from the rentals
- The lessee then has the option to retain full ownership of the asset (by paying the bargain purchase price)