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Financial lease definition

What is a financial lease? 
A financial lease is one method a business can use to acquire equipment with payment structured over time.

It's similar to an outright purchase transaction that's financed through a term loan, in that there are monthly payments for a specific period of time. But it differs in that the lessee doesn't show the obligated balance as debt, the payments are expensed, and the lessor retains title of the equipment.

At the end of the lease, if the lessee doesn't want to purchase based on a predetermined residual value, the asset is returned to the lessor.

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