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of <h1>Financial lease transfers ownership risks to lessee while lessor retains legal title as financing arrangement</h1> A financial lease is a long-term, non-cancellable arrangement where the lessee uses an asset for substantially its entire useful life. The lease payments cover the full asset cost plus interest charges, making it essentially a disguised purchase with loan financing. Key characteristics include: the lessee selects use-specific assets, assumes ownership risks and rewards while the lessor retains legal title, bears obsolescence risk, and makes obligatory payments during the primary lease period. The lessor functions purely as a financier without bearing maintenance costs or providing specialized services. This full-payout lease transfers substantially all ownership risks and rewards to the lessee, serving as an alternative to long-term debt financing where rentals are sufficient to recover the lessor's total investment plus profit.
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