Full Amortization Contract
In the case of a full amortization contract, the lessee bears all costs during the whole contract term such as purchase and refinancing as well as a share in profits of the lessor. Thus after expiration of the lease contract the leased asset is fully paid. Full amortization contracts are not terminable. The basic lease term for a lease contract which is consistent with the leasing decrees must be between 40% and 90% of the operating life expectancy (generally according to the table of depreciation for wear and tear). At the end of the term, the lessee can exercise the purchase option, if granted to him, at the residual book value or the lower fair market value. Moreover, depending on the contract agreement, there is the option to purchase the asset from the leasing company at current market value at the end of the term, to agree upon an extension of the contract or to return the leased asset.
Partial Amortization Contract
In the case of partial amortization contracts the lease instalments are lower than they are in the case of full amortization contracts, since they only cover a part of the purchase price of the leased asset. Thus at the end of the term, a calculated residual amount will still remain in the books of the leasing company. Partial amortization contracts are not terminable. The minimum lease term for a lease contract which is consistent with the leasing decrees must be between 40% and 90% of the operating life expectancy (generally according to the table of depreciation for wear and tear). Subsequent to the term there are several options: The leasing company can offer the asset for sale to the lessee at the calculated residual value or it can sell it to the lessee or a third party at current market value. If the leasing company achieves profit with their sale, the lessee will be given a share. Moreover, there is the option to agree upon a contract extension between lessee and lessor.
Terminable Contract
In the case of a terminable contract the contract term is construed as an indefinite term.
With this flexible contract type the lessee can terminate the leasing contract for the first time after expiration of the minimum lease term of 40% of the depreciation for wear and tear, subject to the notice periods. The cancellation dates and the final payments which are due when the contract has been terminated are stipulated by contract right from the start. Thus the lessee is in the position to react very quickly and easily according to his respective situation during the contract term.