What Is the Difference Between a Capital Lease and an Annuity?

Annuities can fund your retirement. Capital leases cannot.

Capital leases and annuities are two completely different things. A capital lease is a lease that transfers into ownership, while an annuity is when an insurance company agrees to pay a fixed percentage of a principal to its holders.

Capital Lease

A capital lease differs from a regular lease because its ultimate goal is ownership. This is done by leasing for the equipment's entire expected life or agreeing to buy it for less than fair market value at the lease's conclusion. Essentially, it is a reverse loan--the down payment is at the end, not the beginning.

Annuity

Annuities are generally associated with retirees. They give fixed, established incomes to their holders but at the cost of removing personal choice--withdrawing annuity principals generally comes at a high cost to the holder.

Similarities

The similarities between these two is they are both long-term investments. A capital lease is an investment made with the intention of owning an expensive piece of equipment while annuities are investments made with the intention of funding a retirement at a stable rate.

References

• Investopedia: An Overview of Annuities
• Investor Words: Capital Lease