Finance Leases vs Operating Leases

Finance leases

A finance lease is generally a hire agreement over a period similar to that of the asset’s life.

You get full use of the asset and pay the full value over time, but don’t technically own it, however it does appear on your balance sheet as the risks and rewards of ownership sit with you, the leasee.

Operating leases

Operating leases are a rental agreement with a set term which is usually shorter than the term of the asset’s life.  Unlike a finance lease, an operating lease won’t appear on your balance sheet,  however, operating leases can be cheaper as the asset will normally have a residual value at the end of the agreement term.

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