When evaluating leasing options, two common types are operating leases and finance ( or capital) leases, each offering distinct advantages and disadvantages depending on a firm's strategic and financial priorities. Operating leases function much like rental agreements. The lessee uses the asset for a shorter period, often less than its economic life, without assuming ownership. One major advantage is flexibility: companies can update equipment frequently, avoid technological obsolescence, and keep liabilities off the balance sheet under certain accounting conditions. Operating leases also tend to require lower monthly payments and minimal upfront costs. However, a disadvantage is that the lessee never gains equity in the asset and may face restrictions on usage, maintenance, or renewal terms. Over the long run, total leasing costs may exceed the cost of purchasing. Finance leases, by contrast, transfer most of the risks and rewards of ownership to the lessee. These leases typically cover a large portion of the asset's life and appear on the balance sheet as both an asset and a liability. Advantages include eventual ownership benefits, stable long-term access to the asset, and potential tax shields from depreciation. The main disadvantages are higher financial commitment, reduced flexibility, and the responsibility for maintenance, repairs