CLFP Equipment Finance Fundamentals 2

Question 1

What is a 'TRAC lease' primarily used for?

Accepted Answer

Financing over-the-road vehicles and transportation equipment with a Terminal Rental Adjustment Clause

Answer

A TRAC (Terminal Rental Adjustment Clause) lease is specifically designed for vehicles and transportation equipment, with a final payment adjusted based on actual vs. estimated residual value.

Question 2

In equipment finance, what does 'LTV' stand for and why is it important?

Accepted Answer

Loan-to-Value; it measures how much financing is extended relative to the equipment's value

Answer

LTV (Loan-to-Value) is a key underwriting metric that compares the financed amount to the equipment's value, indicating the lessor's collateral coverage.

Question 3

What is 'soft cost' financing in equipment leasing?

Accepted Answer

Financing of non-tangible costs like installation, training, software, or freight bundled with equipment

Answer

Soft cost financing allows lessees to include ancillary expenses like installation, training, warranties, and software in the lease, rather than paying them separately.

Question 4

What is the 'money factor' in equipment leasing?

Accepted Answer

A decimal number used to calculate the finance charge portion of a lease payment

Answer

The money factor is a small decimal (e.g., 0.00250) that represents the finance charge in a lease; multiplied by 2,400 it approximates the equivalent annual interest rate.

Question 5

What does 'advance payment' mean in the context of a lease structure?

Accepted Answer

Lease payments made at the beginning of each period rather than at the end

Answer

An advance payment structure means payments are due at the start of each period (beginning of month/quarter), as opposed to an arrears structure where payments are due at period end.

CLFP - Certified Lease & Finance Professional Practice Test

CLFP - Certified Lease & Finance Professional Practice Test

CLFP Equipment Finance Fundamentals 2