Leasing FAQ
- What are the advantages of leasing?
- How do I enter into a lease?
- How do I decide how long my lease term should be?
- Can upgrades be made to the leased equipment?
- What are my options at the end of the lease?
- How do I terminate or buy the equipment before the lease term is over?
- What happens if I am unsatisfied with my equipment and wish to return it?
- What are some leasing terms?
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What are the advantages of leasing?
- Conserves Cash: Leasing provides 100% financing. Capital can be conserved and used to finance other projects or activities.
- Access to Capital: Leasing does not impact existing credit lines – e.g. an existing bank operating line, thereby providing another source of capital.
- Budgeting: With fixed (monthly, quarterly, annual) payments, cash flow is more predictable making budgeting easier.
- Certainty of payment: The interest rate and payments are known for the term of the lease regardless of fluctuations in market interest rate.
- Protects against obsolescence: Equipment can be returned at the end of the lease and replaced with updated equipment.
- Flexibility: There are numerous ways to structure lease paymenst to meet the particular requirements of the lessee.
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How do I enter into a lease?
To initiate a lease order, send your Purchase Requisition Number, the lease proposal and any other supporting documentation (e.g. competitive quotes) to Procurement Services at purchasing.help@utoronto.ca.
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How do I decide how long my lease term should be?
Attempt to match your lease term to the useful or optimum life of the equipment you are leasing. For example, if you only require the use of the asset for a short period of time but its useful life is 5 years it may be beneficial just to rent the item for the interim period. If you require the use of an asset that has an expected useful life of 4 years before it will require major maintenance or replacement parts it may be useful to lease it for the 4-year optimum life cycle.
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Can upgrades be made to the leased equipment?
Generally, it is permissible to upgrade leased equipment as long as the upgrades do not diminish the value of the equipment. Remember the leased item belongs to the Lessor in the case of an operating lease; the Lessee only has the right to use the item.
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What are my options at the end of the lease?
Leases typically have a variety of end-of-term options. These options will be listed in the agreement and will include one or more of the following:
- Return the equipment
- Extend the lease
- Purchase the equipment for fair market value or residual value
It is always prudent to plan your end of lease options in advance to avoid surprises or inconvenience later on.
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How do I terminate or buy the equipment before the lease term is over?
If you decide to either terminate the lease before maturity or purchase the equipment during the lease term it is important to be aware that, in general, leasing companies are entitled to fair compensation for the expected income and administrative costs related to the termination of your lease. In the extreme, terminating a lease can result in your requirement to completely fulfill the obligations of the lease agreement. For assistance with this process, email Procurement Services at purchasing.help@utoronto.ca with a copy of your lease agreement.
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What happens if I am unsatisfied with my equipment and wish to return it?
This is a complex situation and the course of action will vary depending on your particular circumstances. If you are unsatisfied for reasons pertaining to equipment performance you should first contact the supplier of the equipment to have the issues attended to and to determine what remedies are available under the warranty. If the problem remains unresolved, contact Procurement Services at purchasing.help@utoronto.ca for assistance.
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What are some leasing terms?
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%).