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Definition: Financial Lease is a type of lease in which a finance company is the legal owner of the asset for the duration of the lease, while the lessee not only has operating control over the asset, but also some share of the economic risks and returns from the change in the valuation of the underlying asset.
A financial lease contract normally has these characteristics:
The lessee (investor,) selects some asset.
The lessor (finance company) purchases that asset.
The lessee uses the asset during the lease period.
The lessee pays a series of rentals or installments.
The lessor recovers a part or all of the cost of the asset plus earns interest.
The lessee can acquire the asset.