What is a car finance lease?

A finance lease in car financing is a type of arrangement where a finance company purchases the vehicle on behalf of the customer and then leases it back to them for an agreed-upon period.

Here's how it typically works:

1. The finance company buys the car from the dealer or manufacturer based on the customer's specifications.
2. The customer then leases the car from the finance company by making fixed monthly payments over an agreed lease term, usually between 2 to 5 years.
3. During the lease term, the customer has full use of the vehicle but does not own it.
4. At the end of the lease term, the customer usually has the option to either return the car to the finance company, extend the lease, or purchase the vehicle at its residual value (the estimated value of the car at the end of the lease term).

Finance leases are often preferred by businesses because they allow for lower monthly payments compared to other financing options, and the vehicle does not appear as a liability on the balance sheet. However, it's essential to consider factors such as mileage restrictions and wear-and-tear charges associated with finance leases before entering into an agreement.