What is a finance lease?

A quick overview

A finance lease lets your business use an asset like a vehicle or equipment long-term with the option to take ownership at the end of the lease by paying a residual.

It is one of the most common ways to fund business assets. It gives you full use of the asset without needing to pay upfront. At the end of the lease, you can usually pay a final amount to take ownership. If you’re trying to manage cash flow or want to avoid a full loan, it can be a smart option. In this guide, we’ll explain how it works, what makes it different from other loans, and when to use it.

What exactly is a finance lease?

Put simply, a finance lease is just a long-term rental agreement where your business gets access to an asset like a ute, truck, or machine. However, at the end of the term, you can buy it by paying a final amount called the residual. During the lease, you take care of things like maintenance, insurance, and rego. You don’t legally own the asset, but you use it like you do. This makes it a good option if you plan to keep the asset long-term but want to spread out the cost.

In the context of asset finance in Australia

In Australia, finance leases are used by businesses that need vehicles, tools, or equipment without buying them upfront. You’ll see them a lot in transport, construction, and civil works. Brokers like finance leases because they suit clients who want flexibility but still want to own the asset later. Monthly payments are fixed and easy to budget. And once the lease ends, you can either return the gear or pay the residual to keep it. It’s often cleaner than a loan or hire purchase.

A plumbing business leases two new vans on finance leases (like our client VPS Plumbing Services). Each lease runs for five years with a final payment of $10,000 per van. The vans are used daily for jobs and are claimed as business assets. At the end of the lease, they buy both vehicles and keep them on the books. They got what they needed without a big upfront cost.