APR Annual Percentage Rate. The effective rate taking into account compounding and other fees. The nominal rate of interest for a specified period (usually one year).
Basis Point A unit of measurement equal to 1/100th of a percent. For example, 25 basis points = .25%.
Buyout The amount a lessee must pay the lessor to terminate a lease early. It is usually calculated to include tax recapture, unpaid property taxes and lost revenues.
Depreciation A tax deduction representing a reasonable allowance for exhaustion, wear and tear, and obsolescence, that is taken by the owner of the equipment and by which the cost of the equipment is allocated over time. Depreciation decreases the company's balance sheet assets and is also recorded as an operating expense for each period.
Fair Market Value Purchase Option An option to purchase leased property at the end of the lease term at its then fair market value.
Finance Lease A lease used to finance the purchase of equipment; not a true lease. Finance leases are generally considered to be capital leases from an accounting perspective and non-tax leases from a tax perspective.
Fixed Purchase Option An option given to the lessee to purchase the leased equipment from the lessor on the option date for a guaranteed price. Both the date and the price must be determined at the inception of the lease. A typical fixed purchase option is 10% of the original cost of the equipment.
Incremental Borrowing Rate The rate that, at the inception of the lease, the lessee would have incurred to borrow over a similar term the funds necessary to purchase the leased asset.
Lease Purchase A full payout, net lease structured with a term equal to the equipment's estimated useful life. Because many Lease Purchases include a bargain purchase option for the lessee to purchase the equipment for one dollar at the expiration of the lease, these leases are often referred to as dollar buyout or buck-out leases. Lease Purchases are generally considered to be Capital Leases from an accounting perspective and non-tax leases from a tax perspective due to their bargain purchase option and length of lease term.
Master Lease A contract where the lessee leases currently needed assets and is able to acquire other assets under the same basic terms and conditions without negotiating a new contract.
Operating Lease A lease which is treated as a true lease (as opposed to a loan) for book accounting purposes. An operating lease is accounted for by the lessee without showing an asset (for the equipment) or a liability (for the lease payment obligations) on his balance sheet. Periodic payments are accounted for by the lessee as operating expenses of the period.
Payment in Advance Periodic payments are due at the beginning of each period.
Payment in Arrears Periodic payments are due at the end of each period.
Rate Factor A multiplier, expressed as a percentage of eqipment cost, used to calculate lease payments. Multiplying the rate factor by the equipment cost will result in the lease payment.
Residual Value The value of an asset at the conclusion of a lease.
Sale-leaseback A transaction that involves the sale of equipment to a leasing company and a subsequent lease of the same equipment back to the original owner, who continues to use the equipment.
Upgrade To trade in leased equipment for a newer, more advanced model during the lease term.
