Fair Market Value (FMV) Lease
A lease where monthly payments are lower, but you must buy, return, or refinance the equipment at fair market value at lease end.
Detailed Explanation
Fair Market Value leases (also called operating leases or true leases) offer lower monthly payments because they only cover equipment depreciation, not full cost. At lease end, you have three options: (1) Purchase at fair market value (typically 10-20% of original cost), (2) Return the equipment, or (3) Extend/refinance. FMV leases are treated as operating expenses (not assets), providing tax advantages for some businesses. This lease type offers flexibility to upgrade to newer technology every 3-5 years without being stuck with obsolete equipment. Ideal for businesses wanting latest technology or uncertain about long-term needs.
Examples
- $10,000 copier, 60 months = ~$160/month
- Buyout at end: ~$1,500 (15% FMV)
- Or return and upgrade to new model
- Lower monthly cost vs $1 buyout
Related Terms
$1 Buyout Lease
A lease agreement where you own the equipment for $1 at the end of the lease term.
Lease Rate Factor (LRF)
The multiplier used to calculate monthly lease payments based on equipment cost.
Residual Value
The estimated value of leased equipment at the end of the lease term, affecting monthly lease payments.
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