Finance Glossary

Amount Financed: In a finance contract, the agreed upon sale price of the equipment, plus any charges for taxes, fees, freight, less any down payment and/or net trade-in allowance. This is the amount that is subject to finance charges.

Annual Percentage Rate (APR): In a finance contract, the total amount of finance charges expressed as a true percentage of the declining unpaid balance.

Balloon Contract:A loan that is amortized only down to the expected end-of-term value, with a remaining balance to be paid in a lump sum at the end of the term.

Balloon Payment: Estimated final payment that covers the remaining expected value of the equipment.

Down Payment: The amount of cash or net trade-in allowance applied to reduce the cash sales price of the equipment. Most retail transactions require a down payment of 10 to 15 percent of the amount to be financed. However, the required down payment can be less, depending on your credit standing, ability to repay, and other criteria. A down payment helps lower your payment as well as establish equity in your equipment.

Early Termination: Ending of the lease before the scheduled maturity date for any reason. The reason may be voluntary or involuntary (for example, the equipment is returned early, stolen, or totaled, or you default on the lease.

Excessive Wear and Use: Leases contain specific standards for excessive wear and use. Included are such items as missing parts, dents, cracked glass, ripped/torn/burned interior, and inoperable mechanical parts. At the end of the lease, if the lessee does not purchase the equipment, the lessee can either repair the excessive wear and use or pay the lessor the estimated cost to repair.

Lease: A contract between lessor and lessee for a specified time period and a specific payment. The equipment remains in the name of lessor as owner unless and until the lessee exercises his/her purchase option.

Lease Term: The period of time for which a lease agreement is written.

Lessee: The party to whom the equipment is leased. The lessee is required to make payments and to meet other obligations specified in the lease agreement.

Lessor: The person or organization who regularly leases, offers to lease, or arranges for the lease of the equipment.

Municipal Leasing: A tax-exempt lease that is marketed in the U.S. to local, state and federal government agencies. Also, an organization that is exempt from federal income tax may qualify for this type of lease.

Purchase Option: An option in a lease that allows the lessee to purchase the equipment during or at the end of the lease term for a specified price disclosed in the lease. A lease agreement may or may not include a purchase option.

Purchase Option Price: An option in a lease that allows the lessee to purchase the equipment at the end of the lease term for a specific price, and in some cases, during the lease term at an amount to be determined or at a specified price.

Residual Value: The projected value of the equipment at lease end that is used in calculating the monthly payment. The residual value may be higher or lower than the realized value at the scheduled end of lease.

Retail Installment Sales Contract (Finance Contract): A contract for the sale of the equipment between the creditor and the buyer, in which the creditor agrees to finance the sale under the terms set forth in the contract.

Sales Price: The agreed upon value of a financed equipment, between the seller and purchaser.

Scheduled Termination: The end of the lease term, as called for in the lease. It is also referred to as the scheduled maturity date.

Term: The duration of the finance or lease contract, usually expressed in months (e.g. 24 months, 36 months).

Trade-In Value: The net value of equipment credited toward the purchase or lease of another piece of equipment.