Which lease option is best?Terminal Rental Adjustment Clause (TRAC)
Provides a known residual and offers you ownership opportunities at the end of the lease. Many term and residual options are available, in order to fit your specific needs and equipment. Your three options at the end of the lease include: the residual amount may be re-financed, paid off, or the truck can be returned and sold for fair market value. If the truck sells for more than the predetermined residual, you will receive the difference, but if it sells for less, you owe the difference.
Similar to the TRAC lease; however, this lease generally qualifies for true off balance sheet treatment as a result of the finance company participating in the residual risk.
Fair Market Value (FMV)
This is sometimes referred to as the “walk away” lease, because you have no further obligation at the lease expiration (assuming the vehicle has been well maintained and all terms of the lease have been satisfied). Additionally, at the end of your lease you may opt to buy the vehicle at the fair market value or renew your lease.
Benefits of Each Lease Option
|Lower Monthly Payment Compared to Loans||Yes||Yes||Yes|
|Pre-Determined Residual Price||Yes||Yes||No|
|Lessee Responsible for Residual||Yes||Partially||No|
|Off-Balance Sheet Pricing*||No||Generally||Yes|
|*Always check with your tax advisor for proper financial statement treatment of leases|