- In real estate, an agreement under which a portion of monthly rent may be credited toward eventual purchase of the property.
- In reference to automobiles, the portion of a lease that establishes the amount a lessee may pay the lessor at the end of the lease to purchase the vehicle. The price is usually the residual value.
buy-out option, lease purchase option, lease purchase agreement
Related Terms and Acronyms
- Closed-end Lease — Definition,
- The most common type of car lease. The lessee may return the car at the end of the lease term, pay any end-of-lease costs, such as the disposition fee, and the lease agreement is over. In a closed-end lease, the lender assumes the risk of predicting the value of the vehicle (its residual value) at the end of the lease's term. Closed-end lease payments are somewhat higher than open-end lease payments.
- Future Purchase Option — Definition,
- A provision that gives the policyholder the option to purchase additional insurance coverage at a future date.
- Ground Rent — Definition,
- Amount a leaseholder pays periodically for use of land only.
- Lease Option — Definition,
- A written agreement in which an owner allows an individual to use a property in exchange for rent, and also gives that individual the right to buy the property for a specified price within a specified period
- Open-end Lease — Definition,
- Sometimes called a finance lease. It usually offers lower payments, but carries a risk for the consumer. Under an open-end lease, the lessee must pay any difference between the residual value of the car as stated in the lease and the fair market value of the car, if lower, at the end of the lease. The lessor pays for the appraisal that sets the value. If the consumer doesn't agree with it, the consumer may pay for a binding, independent appraisal by someone agreed to by both parties.
- Option — Definition,
- A legal agreement giving someone the right to buy, sell or lease a property or item at specified terms for a specified period.
- Purchase Agreement — Definition,
- A written promise to pay a specific amount for a property at a specified time. The purchase agreement is a written statement of the offer, which both the borrower and the seller will sign if the offer is accepted.
- Rent — Definition,
- When one party pays another for the use of an asset, service or property.
- Rent-to-Own (RTO) — Acronym,
- An agreement to purchase an asset after a series of rental payments.
- Residual Value — Definition,
- The amount agreed upon to represent the value of the car at the end of a lease.
- Rider — Definition,
- Additional insurance coverage that can added onto another insurance policy.