Lease Payments

What are Lease Payments?

A Lease payment refers to the amount that is equal to the monthly rent which is agreed upon in a contract by two parties. Here the renting party is allowed to use the owner’s Real Estate holdings, Manufacturing equipment, computer, fixed assets for a period of time.

The time of the lease agreement differs based on the type of lease. The payment for the lease is usually done on a month-to-month timetable if it is a software-as-a-service (SAAS) business model. The lease agreement could be as long as a time like 100 years in case of Land-lease.

The amount of lease payment is often decided by the asset value, loan residual value or the lessee’s Credit Score. Lease payments can be done by individuals and companies. Individuals could use leases in order to finance cars, computer equipment, land and other required physical assets. A company might use lease payment in the calculation of the Fixed-Charge Coverage Ratio. This helps investors decide if the company is able to cover fixed expenses such as leases and interest.

Types of Leases

The common types of leases are mentioned below:

• Financial Leases/Capital Leases

• Operating Leases

• Combination Leases

• Sale and Leaseback arrangements

Operating Lease allows for financing and maintenance where lease payments include financing charges and maintenance elements. In Operating leases, lessors will have to service the respective equipment regularly. Financial leases are different from operating leases and they do not require embed maintenance fees in the lease payments. Newer leases types with customised service levels and lease payment structures are now made available.

Remember that if you are looking to lease an automobile instead of actually buying one, beware that some sellers impose mileage minimums to protect the resale value of the vehicle.