A finance lease can provide the benefits of a Rental in terms of basic treatment of the payments being made, but also provides ownership at the end with payment of the final residual amount.
Generally, the end residual (balloon) is set based on the useful life and depreciation rate of the asset, to match what its ‘tax based’ book value would be by the end of the loan term. This is a good form of finance for longer life assets that are core to the business – e.g. plant & equipment and vehicles. The payments may also be a complete tax-deduction, simplifying the need to depreciate the equipment and chargeback the interest expense.*
