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Rakhi Vasavada
Rakhi Vasavada, Financial and Legal Consultant
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Experience:  Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years
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What is the implication to the lessee if the residual value

Customer Question

What is the implication to the lessee if the residual value is guaranteed or un-guaranteed? What is the implication to the lessor?
Submitted: 3 years ago.
Category: Finance
Expert:  Rakhi Vasavada replied 3 years ago.

Dear Friend,

 

Guaranteed Residual Value is, for a lessee, is the part of the residual value which is guaranteed by the lessee or the third party guaranteed by the lessee, the amount of the guarantee being the maximum amount that could, in any event become payable.

 

Whereas, for the lessor, it is that part of the residual value which is guaranteed by the lessee OR by a third party UNRELATED to the lessor that is financially capable of discharging the obligations covered under the guarantee.

 

So far as un-guaranteed residual value is concerned, it is that portion of the residual value of the leased asset, the realization of which is not assured by the lessor or is guaranteed by the any party to the lessor.

 

From lessor's perspective once the lease rate is determined, it makes no difference
whether the residual value is guaranteed or unguaranteed.

 

From lessee's perspective, Guaranteed residual affects minimum lease payment calculation where as Unguaranteed residual value does not affect minimum lease payment.

 

I am sure this would help...

Warm Regards,

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Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years