What is the difference between a true lease and a lease with a purchase option?

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Prepare for the CLFP Equipment Finance Certification Exam with our comprehensive quiz. Study with flashcards and multiple-choice questions, complete with hints and detailed explanations. Gear up for success!

Multiple Choice

What is the difference between a true lease and a lease with a purchase option?

Explanation:
The key idea here is about ownership options embedded in lease contracts. In a true lease, the lessor keeps ownership of the equipment, you’re paying to use it for the term, and there’s no option to purchase at the end. The asset is returned or the lease ends with no transfer of title. In contrast, a lease with a purchase option includes the right for the lessee to buy the equipment at a predetermined price at the end of the lease term, making ownership a possible outcome. So the true lease does not have a purchase option, while the lease with a purchase option does.

The key idea here is about ownership options embedded in lease contracts. In a true lease, the lessor keeps ownership of the equipment, you’re paying to use it for the term, and there’s no option to purchase at the end. The asset is returned or the lease ends with no transfer of title. In contrast, a lease with a purchase option includes the right for the lessee to buy the equipment at a predetermined price at the end of the lease term, making ownership a possible outcome. So the true lease does not have a purchase option, while the lease with a purchase option does.

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