A Fair Market Value lease, also known as an operating lease, is probably what comes to mind when you hear the term “lease.” Commonly utilized when someone leases a car, an FMV lease allows the lessee to use the equipment for a pre-arranged time period for a fixed monthly payment. At the end of the lease term, the lessee has the option to purchase the equipment at its then-determined Fair Market Value, return the equipment, or upgrade to new equipment.

A $1 Buyout Lease, also called a capital lease, is similar to purchasing equipment with a loan. With this type of lease, there is a higher monthly payment compared with an FMV lease, but at the end of the lease term, the lessee  purchases the equipment for $1. Since it is very similar to taking out a loan on a piece of equipment, this type of lease is often used when a business plans to keep the equipment for a long period of time, or when equipment obsolescence isn’t a concern.

An equipment lease agreement with option to purchase is a type of contract where you and your lessor agree that at the end of your lease term you have the option to purchase the equipment.