Definition
An operating lease lets a business use an asset owned by a financier for a period shorter than the asset's useful life, then return it. Payments are regular and predictable, and some operating leases include servicing. There is usually no residual for the business to pay. Operating leases suit technology, medical and office equipment and fleets that are replaced regularly.
An operating lease is the closest business finance gets to renting.
How it works
Title stays with the financier while you pay for the right to use the item for a set time. At the end, you hand it back. Some operating leases bundle maintenance and servicing, which makes costs predictable.
When it suits
Operating leases suit assets that lose value or become outdated quickly, such as IT, some medical equipment and vehicle fleets, and businesses that prefer predictable costs to ownership.
Watch the fine print
Check usage limits, wear-and-tear standards, early termination costs and what happens if you keep the asset past the end date. Diarise the end of the term so an automatic extension does not catch you out. Our equipment leasing review compares lease types. To explore leasing for your business, make one enquiry.
Common questions
What happens at the end of an operating lease?
You usually return the asset and may upgrade to a newer model under a new lease.
Are there extra charges at the end?
There can be charges for excess wear, usage beyond agreed limits or late return. Check the return conditions.
Sources and further reading