Note: Because leasing has such a wide definition, for this article I am specifically talking about lease purchases (where the intent is to purchase the equipment at the end of the term.)
What is the difference between a Lease and Loan? This is a pretty broad topic, but the basics can be covered in a succinct fashion.
Equipment Loan: This is where the Lender (the party that is providing the money) is loaning out a specific sum of money to the Buyer (the party that is purchasing the equipment), and the money is applied towards the purchase of a piece of equipment. The Buyer purchases the equipment in their name and the Lender then files a UCC or Lien on the equipment until the agreed upon payments have been made.
Equipment Lease: This is essentially a rental agreement. The Lender buys the equipment on behalf of the Buyer, and after the agreed upon payments have been made the Buyer then can purchase the equipment for a predetermined residual amount. (Common residuals include $1, 10%, or FMV, which I’ll cover at a later date.)
In short, the basic difference between a Equipment Loan and a Lease is the ownership of the equipment during the course of the payment plan. Also a Lease by nature has to have some sort of residual at the end of the term.
Related Articles and Links:
–Residuals (various types)