Finance Leases versus Contract Hire

A Finance Lease transfers the majority of the “risks and rewards” of ownership to the lessee/customer.

There are two main differences between a Finance Lease and a Contract Hire (also known as Operating Lease) agreement:

One

A  Finance Lease can be structured with or without a balloon payment. However, a Contract Hire agreement always take into account a residual value set by the leasing company, but this residual value is not visible to the customer nor is it their responsibility.

Two

The vehicle on a Finance Lease agreement is shown in the Balance Sheet of both the lessor and the lessee as a leased asset. Under Contract Hire, it is only the lessor (lease company) who lists the vehicle on their Balance Sheet.