FIXED PRICE PURCHASE OPTION

The right, but not the obligation, to buy a leased item at a predetermined price. With a fixed price purchase option, the purchase price is established when the lease terms are agreed upon. The lease agreement should also describe when the option can be exercised (usually at the end of the scheduled lease term). Types of property that may come with fixed price purchase options include automobiles, real estate and heavy equipment.

The advantage of the fixed price purchase option for the lessee is that the lessee knows with certainty what the cost to purchase the property will be. By contrast, with a fair market value lease, the consumer also has the option to purchase the leased item at the end of the lease term, but the price will be the item's fair market value at the lease's expiration. The consumer will not know in advance how much the purchase price will be.