To Buy Or Not To Buy?

Speak The Lingo

$1 buyout lease: At the end of the lease, you can purchase the leased equipment for $1. Your monthly payments will be higher in this case.

Deferred payment lease: A payment schedule that allows you to defer your first payment by 60 or 90 days. This is an example of the flexibility leasing offers.

Economic/useful life: The time period during which equipment will retain value. Most high-tech equipment has an economic life of no more than five years.

Equipment schedule: A document provided by a lessor detailing the terms of the lease, your payment schedule and the equipment being leased.

Fair market purchase option: At the end of your lease, one of your purchasing options is to buy the equipment at its fair market value.

Master lease: If you already have a lease in place and want to lease additional equipment, you can avoid negotiating a new contract by using the same terms as on your initial lease, making it a master lease and saving you time and money.

Modern equipment substitution: A provision that can be negotiated into your lease so you don't end your lease when the equipment becomes outdated, but rather have it replaced with newer equipment during the lease term.

Purchase option: A provision written into the lease that gives you the option of buying the equipment at the end of the lease. The price can be the fair market value, or you can decide on a price when you negotiate your lease.

Residual value: The value of your equipment at the end of a lease.

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This article was originally published in the January 2001 print edition of Entrepreneur with the headline: To Buy Or Not To Buy?.

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