Operating lease: long-term vehicle rental with no ownership
An operating lease lets your business use vehicles or equipment without ownership. Pay fixed rentals, keep cash flow predictable, and return or upgrade assets when the lease ends.
Last updated: October 2025, edited by Joe Morley, reviewed by Vivek Seda
What is an operating lease and how it works
What is an operating lease?
An operating lease is a contract where your business rents vehicles, machinery or equipment for a fixed term. The leasing company owns the asset and takes responsibility for depreciation and resale.
This makes operating leases ideal for businesses that want to:
Keep costs predictable with fixed monthly payments
Avoid the risks of asset ownership
Regularly upgrade vehicles or equipment
How does an operating lease work?
Choose a vehicle, van or piece of equipment.
Agree a lease term — typically 2 to 5 years.
Pay fixed monthly instalments for the duration.
At the end, return the asset to the leasing company.
Unlike a finance lease or hire purchase, you do not have the option to own the asset.
Benefits and considerations of operating leases
In detail
Benefits | Considerations |
Lower monthly costs than buying outright | No option to own at the end of the term |
Off-balance sheet – may improve financial ratios | Mileage limits and condition charges may apply |
Easy to upgrade or replace assets regularly | Total cost can be higher over long periods |
Maintenance may be included in agreements | You must return the asset in good condition |
Who uses operating leases?
Operating leases are popular with:
Operating leases are popular with:
Businesses that need fleets of cars or vans
SMEs wanting to preserve cash flow
Companies in industries with fast-changing technology or vehicle requirements
Firms that prefer predictable budgeting and no resale responsibility
Costs and tax treatment
Monthly payments are fixed for the lease term
Usually cheaper than short-term rental, but more expensive than outright ownership in the long run
Lease payments may be tax deductible as a business expense (check with your accountant)
Maintenance and servicing are sometimes included
Example scenarios
Logistics company – leases vans for 3 years, avoiding the risks of resale value.
IT services firm – leases computer equipment, upgrading every 2 years.
Consultancy – leases company cars with maintenance included, keeping costs predictable.
Operating lease vs other options
Hire purchase
Spread the cost and gain ownership at the end, often after a nominal option to purchase fee. Suited to assets you plan to keep long term. Learn more about hire purchase.
Finance lease
You rent the asset for most of its useful life. At the end, you can continue leasing, sell on behalf of the lessor or upgrade. Ownership stays with the lender. Learn more about finance lease.
Asset finance
Asset finance is used to fund vehicles, machinery and equipment.
Business loans
Business loans are best for one-off investments with fixed repayments. You borrow a lump sum and repay over months or years.
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Learn more about operating leases
What happens at the end of an operating lease?
You return the vehicle or equipment to the leasing company. There’s no option to buy.
Is maintenance included?
Often yes, depending on the agreement. Some leases cover servicing and repairs, others don’t.
Can I end the lease early?
You may face early termination fees, so check the terms carefully.
What’s the difference between an operating lease and contract hire?
They are often used interchangeably. Both involve long-term rental with no ownership at the end.
Is an operating lease tax deductible?
In many cases, lease payments can be treated as a business expense. Always check with your accountant.
Please note that the information above is not intended to be financial advice. You should seek independent financial advice before making any decisions about your financial future.
It’s important to remember that all loans and credit agreements come with risks. These risks include non-payment and late-payment of the agreed repayment plan, which could affect your business credit score and impact your ability to find future funding. Always read the terms and conditions of every loan or credit agreement before you proceed. Contact us for support if you ever face difficulties making your repayments.
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Vivek Seda
Business Finance Manager
Vivek is the Asset Based Lending Manager at Funding Options by Tide. Vivek has been in the industry for over 10 years, working for both lenders and brokers. His product specialisms cover Asset Finance, Invoice Finance, Property Finance and structured transactions.