Finance lease
Asset-Backed Securities glossary · Asset Specific Nuances
Definition
A lease in which the lessee has substantive ownership benefits and the lease economically resembles a secured loan.
Finance lease in plain English
A lease is normally just renting — you use something, then hand it back. A "finance lease" is different: the person leasing (the lessee) is really getting almost all the benefits and risks of owning the item, even though the paperwork says "lease." In substance it works like a loan used to buy the thing, with the item itself as collateral. It's like a rent-to-own arrangement for a couch: you're calling it renting, but you keep it, maintain it, and effectively own it — so accountants and investors treat it as a secured loan, not a simple rental.
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