The only difference between an Operating and a Finance Lease is that the primary period rentals do not cover substantially all of the capital cost and hire charges.
The only difference between an Operating and a Finance Lease is that the primary period rentals do not cover substantially all of the capital cost and hire charges. For example a lease for a printing press costing £400,000 may include a residual value at the end of the primary period of £150,000. The primary rentals are thus based on £250,000 and not the capital cost of £400,000.
Due to the fact that the asset needs to be sold on at the end of the primary period to recover the residual value, it is very rare for an operating lease to have a secondary rental period. In some instances the funder may structure a finance lease for you to 'wash-out' the residual position.
With an Operating Lease you may source the supplier, but it is often the case that the leasing company can acquire the asset for you cheaper (for example car leasing companies). You will have to pay any documentation fee and an initial payment of a multiple of rentals. The rentals attract VAT that can be recovered subject to eligibility. As the finance company is the owner of the asset, you will not need to pay the purchase VAT at inception.
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