When a customer walks into an Isuzu dealership looking to lease a truck, they will typically be presented with two options: A TRAC lease and a Fair (FMV) lease. But what does that mean in layman’s terms for those less Finance-savvy? What is the difference between the two kinds of leases, and is one lease better than another?
TRAC VS. FMV
Two popular choices when considering leasing a vehicle are the TRAC and FMV leases. While the main difference between the two is the breakdown of the payment structure, each lease has a few nuances that the customer should consider before making their decision, in order to select the lease type that works best for their business.
A TRAC Lease is also known as a Terminal Rental Adjustment Clause. TRAC leases are the most frequently used lease type for commercial lending. A large reason for this is that there are no wear-and-tear or mileage restrictions. This makes it ideal for high mileage or heavy-use customers. The customer’s monthly payment is determined by the residual value chosen at the start of the lease. At lease-end, customers have the option to either 1) Purchase the truck, 2) Replace, trade, or refinance the truck, or 3) Return the truck (in which case, the customer is responsible for the difference between the vehicle’s residual value and its actual value).
A FMV (Fair Market Value) Lease may also be referred to as a “Walkaway” Lease. The Isuzu iLease is the signature FMV product for Isuzu Trucks, allowing customers to pay only for the use of the truck. The biggest advantage of a FMV lease is the customer’s ability to return the vehicle at lease-end with few questions asked. Aside from paying normal monthly installments/rent across a set term, the lessee will be responsible for excess damage to the vehicle and for mileage exceeding that which was detailed in the lease agreement. Using a number of forecasting and depreciation tools, the leasing company will determine a residual value for the vehicle, which is used to calculate the monthly payment. In general, FMV leases give the customer more flexibility at lease-end.
What Type of Lease is better?
There is not always a clear “better” option between the two types, as the decision will often come down to which lease best fits the customer’s business. TRAC leases allow for unlimited mileage and a flexible residual amount. A FMV lease is the better option for customers looking for a truck with predictable, low monthly payments, and those who want a new truck more often.