10% Purchase Option Equipment Lease: How It Works
A 10% purchase option can make an equipment lease look attractive because it reduces the periodic payment while giving the business a known end-of-term purchase price.
The important part is understanding what the 10% is based on, whether purchasing is genuinely optional and how the final payment changes the total cost of ownership.
Quick Answer: A 10% purchase option equipment lease lets a business use equipment for a fixed term and, if the contract truly makes purchase optional, buy it at maturity for a predetermined amount equal to 10% of the stated base. Payments are generally lower than a comparable $1-buyout structure because more value remains until the end.
What is a 10% purchase option equipment lease?
A 10% purchase option is a lease structure with a predetermined purchase price at the end of the scheduled term.
If the contract defines the option as 10% of a $100,000 original equipment cost, the end-of-term purchase price would be $10,000.
That amount is deliberately left outside the regular lease payments. Because the lessor does not need to recover that final $10,000 entirely through the periodic rent, the monthly payment can be lower than under an otherwise comparable $1 purchase-option structure.
Equipment Finance Advantage, an educational resource of the Equipment Leasing and Finance Foundation, defines a fixed-price purchase option as a lessee's option to purchase for a price and date established when the lease begins and notes that these options can be expressed as percentages such as 10% to 15%. It separately defines a purchase option as the lessee's right to buy and a put option as a requirement that the lessee purchase. Equipment Finance Advantage
That distinction is critical.
Do not assume every agreement carrying a "10% purchase option" label gives you identical rights.
Is the 10% buyout always optional?
No assumption should be made from the product name alone.
An actual purchase option gives the lessee a contractual right to buy. A put, mandatory residual or purchase-upon-termination obligation can require the customer to purchase or satisfy a defined end-of-term amount.
Current provider materials illustrate why you should read the agreement rather than rely on the label. United Rentals presently describes its 10% Purchase Option Lease as a 12- to 60-month structure under which the customer is responsible for 10% of the total amount financed at the end of the term. That is United Rentals' program, not a universal definition of 10% purchase-option leasing. United Rentals
Ask the provider to point to the exact end-of-term clause.
If you decline to purchase, can you return the machine with no additional residual obligation?
Can you renew?
Or are you required to pay the 10% amount regardless?
Those produce materially different risks.
What is the 10% calculated from?
Confirm the calculation base in writing.
A lease might define the 10% using original equipment cost, original invoice price, capitalized cost or total amount financed. Those numbers are not always equal.
Assume a machine itself costs $100,000 but the provider approves another $12,000 of freight and installation.
Ten percent of the $100,000 equipment price is $10,000.
Ten percent of a $112,000 financed amount is $11,200.
That $1,200 difference matters at maturity.
For projects involving freight, rigging or installation, establish what is actually included using Mehmi's guide to equipment delivery and installation costs before comparing buyouts.
Why does a 10% option reduce the monthly lease payment?
Part of the equipment value is intentionally left until the end.
Imagine two 60-month structures covering the same $100,000 machine.
A $1 purchase-option structure effectively brings nearly the entire equipment amount into the scheduled payment stream.
A 10% purchase-option structure leaves approximately $10,000 for the maturity decision.
The payment therefore does less work each month.
That is also why the monthly payment should never be compared without the buyout. Mehmi's written equipment financing offer comparison explains how to combine payments, fees and residual amounts into one ownership comparison.
A 10% purchase option should also not be confused with an FMV lease. With a fixed 10% option, the contract establishes the purchase price in advance. Under an FMV option, the purchase price is generally based on the equipment's future fair market value under the agreement.
Illustrative example: a $100,000 machine with a 10% purchase option
Assume an illustrative U.S. manufacturer leases a new $100,000 machine that it expects to use well beyond five years.
To show the effect of the residual clearly, assume:
Equipment cost is USD $100,000. The term is 60 months, with payments made monthly in arrears. The purchase option is exactly 10% of original equipment cost, or $10,000, due with the maturity purchase. There is no down payment, advance rent or refundable deposit.
For modeling only, assume pricing equivalent to an 8.5% nominal annual financing assumption divided monthly and a $750 documentation fee paid upfront.
Taxes, insurance, maintenance, installation, filing charges and other costs are excluded. This pricing assumption is not an APR disclosure, market-rate estimate or Mehmi financing offer.
Under those assumptions, the modeled monthly lease payment is approximately $1,917.32.
Across 60 payments, scheduled rent totals approximately $115,039.27.
If the company exercises its $10,000 purchase option, rent plus the buyout equals approximately $125,039.27.
Adding the assumed $750 documentation fee produces $125,789.27 of nominal cash outflow through ownership.
The monthly payment tells only part of the story.
If management wants the $10,000 purchase price fully reserved by maturity, setting aside $166.67 per month for 60 months would build that amount, ignoring any return on the reserve.
Lease payment plus that reserve equals approximately $2,083.99 per month from the company's cash-flow budget.
What would a $1 purchase option look like?
Using the same $100,000 cost, term and 8.5% modeling assumption but leaving only $1 at maturity produces an estimated payment of approximately $2,051.64 per month.
That is about $134.32 more each month than the 10% structure.
Including 60 payments, the $1 purchase price and the same $750 fee, modeled nominal cash outflow through ownership is approximately $123,849.38.
The 10% option therefore lowers monthly rent but produces about $1,939.89 more nominal cash outflow through ownership in this model because more principal-like value remains outstanding until the end.
That does not prove a $1 structure is universally cheaper. Actual lessor pricing, fees, tax treatment and timing differ, and the present values are designed to be equivalent under the simplified pricing assumption.
It demonstrates the real decision: lower payments today versus a larger known payment later.
Businesses deciding between ownership-oriented structures can also review Mehmi's equipment finance agreement versus $1 buyout lease comparison.
Who is a 10% purchase option lease best suited for?
It can fit a business that is reasonably confident it will keep the equipment but wants a smaller scheduled payment than a near-full-payout structure.
Long-life production machinery, construction equipment and other assets that remain productive well after a five-year term can potentially fit that profile.
The economics become more attractive when management expects the equipment's useful value at maturity to comfortably support keeping it.
That does not mean you should assume a $100,000 machine will be worth more than $10,000 in five years.
Evaluate the actual equipment.
Mehmi's equipment appraisal and collateral-value guide explains why purchase price, book value and future market value are different concepts.
For used machinery, remaining productive life matters even more. A 10% purchase price is not attractive if the machine requires a $40,000 overhaul immediately after maturity. Review equipment age and condition before choosing the term.
When is a 10% purchase option a poor fit?
It can be a weak choice when the business is unlikely to keep the equipment.
Technology that becomes obsolete quickly may be better suited to a structure designed around return or replacement, depending on its economics.
A fixed 10% option also deserves caution when the business only chooses it because the lower payment makes an otherwise unaffordable machine appear workable.
The maturity payment eventually arrives.
If the company cannot reasonably build a $20,000 reserve on a $200,000 transaction, management is implicitly betting that future cash flow or future refinancing will solve the problem.
Neither should be assumed.
A conventional loan, $1 buyout, FMV lease, smaller machine or rental may fit better. Mehmi's equipment loan-versus-lease total-cost guide can help separate ownership needs from payment preferences.
What should you check before signing a 10% purchase option lease?
Use the final contract rather than the salesperson's description. At minimum, confirm:
- The calculation base: Is 10% based on equipment price, original cost or total amount financed?
- Whether purchase is truly optional: Identify what happens if you do not exercise it and distinguish a purchase option from a mandatory put or residual obligation.
- The complete payment stream: Record advance rent, regular payment amount, frequency and total number of payments.
- Fees and taxes: Identify documentation, filing, title or purchase-option charges and applicable taxes separately.
- The maturity process: Confirm the exercise deadline, required notice and when title transfers.
- Return and renewal rights: If you do not purchase, determine whether return or renewal is permitted and which condition, transportation and notice requirements apply.
- Early termination: A 10% maturity option does not mean an early buyout costs 10%. Obtain the contractual early-purchase or termination calculation.
- Security and guarantees: Identify liens, insurance obligations and any personal guarantee before comparing the structure solely by payment.
Equipment-finance industry guidance emphasizes establishing end-of-term purchase, return or renewal rights in the original agreement rather than leaving them until maturity. Equipment Finance Advantage
For the personal-liability portion, Mehmi's U.S. personal-guarantee guide explains why a guarantee and equipment collateral are separate obligations.
Can you buy the equipment early for 10%?
Do not assume so.
The 10% usually describes a scheduled end-of-term purchase option.
An early buyout can use a completely different formula involving remaining rentals, the residual, discounting, fees or other contract amounts.
Equipment finance industry guidance notes that early-termination and purchase rights can depend on advance notice, documentation, default status and specifically negotiated economics. Elfa Online
Ask for sample early-purchase figures at months 12, 24 and 36 if you believe you may sell or replace the equipment before maturity.
A business planning to keep the machine but lacking cash for the final option may potentially pursue new financing at that time, subject to a fresh credit decision. Mehmi's equipment lease buyout financing guide explains what lenders can review when financing the end-of-term purchase amount.
Future approval should never be treated as guaranteed.
How do lenders qualify a 10% purchase-option lease?
The purchase option changes structure; it does not eliminate underwriting.
Providers can review business cash flow, credit, operating history, existing obligations, liquidity, equipment, seller and requested term.
The residual also matters because some equipment value remains economically relevant at maturity.
The OCC's lease-financing handbook directs bank examiners to evaluate both financial and repayment capacity and valuation and residual analysis in lease underwriting. OCC.gov
A business with strong cash flow buying mainstream machinery can present differently from a thinly capitalized startup buying highly specialized equipment even when both request the same 10% option.
For the borrower side, Mehmi's equipment financing credit-score guide explains what providers can assess beyond the score.
Prepare the business and equipment information together using Mehmi's U.S. equipment financing application checklist.
And remember that an initial approval can still depend on final equipment, seller, insurance and documentation. Review equipment preapproval versus final approval before making a nonrefundable commitment.
How is a 10% purchase option treated for U.S. taxes and accounting?
Do not assume the word lease determines federal tax treatment.
The IRS states that businesses must determine whether an equipment agreement is a lease or a conditional sales contract based on the agreement and surrounding facts. Factors can include whether title or equity is effectively being acquired and whether the purchase option is nominal compared with expected equipment value. IRS
A 10% purchase price is therefore not automatically a "true lease" for tax purposes, nor is it automatically a financed purchase.
Have a U.S. tax adviser review the actual documents.
Accounting requires similar caution. FASB Topic 842 generally requires lessees to recognize assets and liabilities for leases longer than 12 months, with presentation depending on classification. FASB also requires purchase options that are reasonably certain to be exercised to be considered in the lease accounting analysis. FASB
Do not select a 10% lease based on an unsupported promise that it will automatically remain "off the balance sheet" or that every payment will be immediately deductible.
Frequently asked questions about 10% purchase option leases
Is the 10% purchase option a balloon payment?
Economically, both involve a larger amount at the end, but they are not necessarily the same legal structure. A balloon is generally unpaid principal on financing. A purchase option is a contractual right to acquire leased equipment. Read the agreement rather than treating the labels as interchangeable.
Is a 10% buyout always cheaper than an FMV buyout?
No. The fixed 10% amount is known in advance. Future FMV is not. If the equipment's future market value exceeds the fixed purchase option, 10% could prove attractive; if its market value collapses, purchasing for 10% may be unattractive. The contract's return rights matter.
Is a 10% purchase option better than a $1 buyout?
It depends on cash flow. The 10% structure can reduce periodic payments but creates a larger maturity decision. A $1 structure typically puts more cost into regular payments and leaves very little at the end.
What happens if I cannot afford the 10% at maturity?
Your contractual alternatives might include return or renewal if the agreement permits them. You may also seek financing for the purchase amount, but new financing requires approval. Do not sign today assuming refinancing will necessarily be available several years from now.
Does 10% down mean the same thing as a 10% purchase option?
No. A 10% down payment is cash contributed near the beginning of the transaction. A 10% purchase option is an end-of-term purchase amount. They affect cash flow at opposite ends of the financing period.
Does exercising the purchase option automatically transfer title?
Follow the contract. Confirm required notice, payment, taxes, documentation and title-transfer steps. Do not assume the final ordinary rent payment alone transfers ownership.
Discuss a 10% purchase-option lease with Mehmi
Mehmi Financial Group is a Canada-based commercial financing brokerage and intermediary, not a bank or direct lender. Independent providers determine whether a 10% purchase-option structure is available and set approval, payments, fees, collateral and final contractual terms. Mehmi does not control underwriting or guarantee an approval or particular lease structure. Mehmi Financial Group
Businesses can review Mehmi's commercial equipment leasing options when comparing purchase-option structures.
U.S. availability depends on the jurisdiction and transaction. Under Mehmi's terms updated October 7, 2026, unless it confirms an applicable authorization or exemption for a specific transaction, it does not accept or broker commercial financing applications involving borrowers or recipients located or principally based in California, Illinois, Missouri, Nebraska, North Carolina, North Dakota or Vermont. Additional product-specific restrictions can apply. Mehmi Financial Group
To discuss a lease, provide your equipment amount in USD, U.S. state, equipment and intended use, preferred term, expected ownership plan and purchase timing. Call 833-863-4644 or use the Mehmi Financial Group contact page. Mehmi Financial Group