Dollar Buy Out Lease Key Terms
Understand your next equipment purchase involving a dollar buy out lease
Want to buy your equipment for $1? That may seem too good to be true, but it is a real option when it comes to the end of your lease term. A dollar buy out lease is just one of many different leasing options. You'll want to learn key terms associated with the dollar buy out lease before you sign on the dotted line. While leasing and then buying for $1 may seem like a good deal, do your homework to make sure it's the right option for your unique situation.
Dollar buy out lease
A dollar buy out lease does just that: it gives the lessee the option of buying the equipment or property being leased for $1 at the end of the lease term.
Try: Compare the advantages and disadvantages of the dollar buy out lease option with other options, including the percentage with option to buy and fair market value lease options, at elease.com.
Fair market lease
A fair market lease, also known as an operating lease, allows the lessee to purchase the equipment at its fair market value price at the end of the lease term.
Try: Check out an example of the fair market lease financing available from Hewlett-Packard.
Percent of purchase option to buy
A percent of purchase option to buy clause in a lease allows the lessee to purchase the equipment for a percentage of the original purchase price. A common percentage used is 10%.
Try: Green Stone Farm Credit Services compares a traditional loan to leasing with a purchase option.
True lease
A true lease refers to a lease which allows the lessee to claim lease payments on taxes. A true lease term is generally short - sometimes shorter than the useful life of the leased property or equipment. A true lease may also include a provision to buy the equipment at fair market value.
Try: Capital Funds Leasing explains the details of a true lease further and has specialists available to answer questions.
Depreciation
After you've used the leased equipment for a time, the value of it has depreciated or been reduced. Depreciation can be applied to any non-cash expense and is a result of general wear and age of the asset.
Try: This Bankrate article explains depreciation and gives an example of vehicles depreciating in value.
Residual value
When the lease term is up, what is the equipment worth? That value is known as its residual value.
Try: Riggs explains what factors go into calculating residual value including the equipment's specific model, age, how it was used, maintenance and the market for used equipment, among others.
Copyright © 2011 Business.com, Inc. All Rights Reserved.
