What are the types of finance leases?

There are two types of finance leases:

1) Finance lease where the asset is acquired by the user at the end of the period (so-called ‘closed-end lease’), and

2) Finance lease with an option to acquire the asset at the end of the period (so-called "open-end lease’). In closed-end leases, the Lessee acquires the ownership of the asset at the end of the period if it has repaid all its liabilities under the lease. This type of lease does not provide for the existence of a residual value/option at the end of the lease period.

In open-ended leases, the Lessee has the option, but not the obligation, to acquire the ownership of the asset at the end of the period. This type of lease contains a residual value/option at the end of the lease period, and the Lessee has the option to choose whether to pay the value of the option and acquire the leased asset or not to pay the value of the option and not to acquire the leased asset.