Maximum flexibility. Zero residual risk.
An Operating Lease is essentially a long-term rental agreement. You only pay for the value of the asset you use over the term, not the full capital cost. It's ideal for high-value assets that you want to upgrade regularly.
Key benefits
- Lower monthly payments — you only pay for depreciation
- No risk of the asset losing unexpected value (residual risk sits with lender)
- Off-balance sheet funding improves financial ratios
- Easily upgrade to the latest equipment at the end of term
- Rentals are usually 100% tax deductible as a business expense
Who is it for?
Businesses needing advanced technology, commercial vehicles, or equipment that depreciates rapidly and requires frequent upgrading.
How it works
The lender calculates the asset's residual value at the end of the term. Your monthly payments only cover the difference between the purchase price and this residual value (plus interest). At the end you simply hand the asset back.
Frequently asked questions
What is the difference between operating lease and finance lease?
With an operating lease the lender takes the residual value risk — your payments are lower and you hand the asset back at the end. A finance lease passes most of the risk and reward to you.
Can I buy the asset at the end of an operating lease?
Generally no — that would convert it to a finance lease. You return the asset and can then arrange a new lease on updated equipment.
Is an operating lease off balance sheet?
Under IFRS 16 most leases are now brought onto the balance sheet for large companies. SMEs following UK GAAP FRS 102 may still treat qualifying operating leases off balance sheet.