Fixed Buyout

A fixed buyout is a predetermined amount of money that will need to be paid to the lessor by the lessee at the end of term. Common fixed amounts are 10%, 5%, or 3% of the total equipment value. As the lessee makes their last payment, they would have to write a check for the additional amount negotiated just to be able to keep the equipment and transfer ownership. As an example, a fixed buyout of 5% on a $100,000 piece of equipment would result in a $5,000 at the end of the lease.

If the fixed buyout is sufficiently lower than what would be considered the fair market value of the equipment at the end of the term, then the lease would qualify as a capital lease. Having a fixed buyout greater than $1.00 will make your monthly payments smaller. The larger the fixed buyout, the lower the monthly payment. This is because you are deferring that chunk of the payments to the end of the lease term. This can be helpful with trying to manage your cash flow better.