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Explain Financial Lease.
Financial lease is a method of raising finance to pay for assets. It is also known as capital lease. It is a commercial agreement between Lessor and Lessee. In financial lease, the lessee or the borrower selects an asset and the lessor purchases that asset and gives it to the lessee. In this way lessor acts as a financier of the assets borrowed by the lessee. The lessee will have to use that asset during the lease period and will have to pay for the cost of repairs, maintenance and insurance of the asset. The lessor is the legal owner of the asset during the period of lease and recovers a major part of the cost of the asset plus interest earned from the rental paid by the lessee. As the lessee assumes some risks of the ownership and enjoys some of the benefits. He has the option to acquire ownership of the asset by paying a nominal price which is the ‘repurchase price.
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