Leasing is a flexible form of financing that allows the use of a product without having to pay for the full face value. You only pay for the anticipated depreciated value of the item plus the cost of money (interest charge). At the end of the lease (operating lease) you may either return the product, purchase the product at the Fair Market Value or you may choose to re-lease the item based on the then current value and interest rates. These different options for the end of lease terms are structured before the lease is signed (executed).
For additional information, see the Leasing FAQ.
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Types of Leases
A capital lease is essentially a financed purchase of a product over time, and the value of the purchase item at the end of the lease is predetermined to be a price less than the Fair Market Value of the purchase. The Lessee (you) will actually own the purchased item at the end of the lease period by making one last final payment. For both tax and accounting purposes the purchased item (capital asset) will be reported as property of the lessee.
In an operating lease, the Lessee has the right to use the purchased item, but does not own the item; and the Lessee may return the asset or purchase it at fair market value at the end of the lease. For both tax and accounting purposes, the asset is reported as property of the lessor (the company who is financing the item).
- Annual Percentage Rate (APR): The annualized cost of credit expressed as a percentage.
- Balloon Payment: An additional payment that may be charged at the end of a lease.
- Lease: A contract between a lessor and a lessee for the use of a product, subject to stated terms and conditions, for a specified period and for a specified payment.
- Lessor: Owner of the leased product (asset)
- Lessee: The User of the asset paying for the product
- Fair Market Value (FMV): The value of the product at the end of the lease term which anyone wanting to purchase the product would reasonably pay for it.
- Money Factor (MF): The annualized cost of credit expressed in dollars per $1000.00 or sometimes expressed as a decimal number (e.g. 0.00289 = 6.936%).
Creating Lease Orders in FIS
Unit creates a Workflow Lease Order in FIS. If the total procurement value is greater than $50,000, the Lease Order will be reviewed by Procurement Services before being released.
Note: UTM and UTSC may have different processes and review thresholds. For more information, email your procurement campus contact.