Extension Rentals

Formal

Businesses that don’t want to buy equipment outright usually lease or rent. A commitment is made for a ‘primary rental period’ - let’s say this is 36 months - and at the end of this period there are two choices, - return the equipment or continue to use it. Extension rentals are the monthly charge for continuing to use equipment beyond the original rental period, and are usually charged at a lower monthly rate because the equipment is older and the original hirer has already recovered most of their original financial commitment.

Real-world Example

A business reaches the end of a 3-year equipment lease but isn't ready to replace it yet, so it agrees extension rentals - continuing to pay to use the same equipment on a rolling basis past the original term.