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hambletonauthorWhat Are the End of Contract Options for Finance Lease?
Finance leases, also known as operating leases, are a popular method of financing equipment and other assets for businesses and individuals. These leases allow users to access the assets they need without incurring the full cost of purchasing them. However, once the lease term is over, the user has several options to consider when disposing of the leased asset. In this article, we will explore the end of contract options available for finance leases.
1. Return of the leased asset
One option is for the lessee to return the leased asset to the lessor at the end of the lease term. This option is often preferred by lessees as it allows them to avoid the cost and effort associated with disassembling, shipping, and reassembling the leased asset. Upon return, the lessor may choose to resell the asset or keep it for its own use. If the lessor decides to resell the asset, the lessee may be responsible for paying the difference between the remaining lease payments and the sale price of the asset.
2. Transfer of the leased asset to the lessee
Another option is for the lessee to purchase the leased asset at the end of the lease term. This option often requires the lessee to pay the remaining lease payments plus a purchase price. By purchasing the asset, the lessee acquires full ownership rights, including the ability to resell, repair, or dispose of the asset as they see fit. However, this option also comes with significant financial obligations, as the lessee will need to make the remaining lease payments and potentially purchase insurance, maintenance, and other related costs.
3. Transfer of the leased asset to a third party
In some cases, the lessee may wish to transfer the leased asset to a third party, such as a buyer or another entity. This option requires the lessee to obtain the consent of the lessor, which may be granted on terms and conditions determined by the lessor. Once consent is granted, the lessee can transfer the asset to the third party, who will become the new owner and responsible for any remaining lease payments and other obligations.
4. Extension of the lease term
In some cases, the lessor and lessee may agree to extend the lease term, usually for a limited time. This option allows the lessee to continue using the leased asset for an additional period, during which they still have the option to purchase the asset or return it at the end of the extended term. However, extending the lease term typically comes with additional fees and may require the lessee to make additional lease payments or agree to other terms determined by the lessor.
Finance leases offer businesses and individuals a convenient way to access the assets they need without incurring the full cost of purchasing them. However, at the end of the lease term, the lessee has several options to consider, including returning the asset, purchasing it, transferring it to a third party, or extending the lease term. Understanding these options and their potential implications is crucial for lessees to make informed decisions about the disposition of leased assets at the end of the lease term.