In its simplest terms, a lease is a contractual equipment usage agreement between the equipment owner (lessor) and the equipment user (lessee). The lessee pays the lessor a monthly lease payment for the rights to use the equipment. The amount of the monthly lease payment is a function of the original equipment cost, the length (“term”) of the lease, and the lessor’s cost of funds. Other components of the monthly lease payment may include property taxes, sales/use taxes, insurance charges, and any other expenses associated with the transaction such as maintenance charges and fees for documentation and filing.
The expected value (or residual value) of the equipment at the end of the lease term is also taken into consideration in the pricing of most leases. A higher anticipated residual value usually translates into lower lease payments for the lessee.
While many leasing companies may use the same name to describe a lease, the actual terms and conditions written in their contracts often vary. At Specialty Funding, we always recommend you carefully review any leasing documents and ask us to explain anything that is unclear.