Compare Equipment Leasing vs Buying Costs
Equipment Leasing Overview
When you need to acquire expensive equipment, leasing is a great alternative to buying for some businesses. Leases require little or no money down, and payments are spread over a period of years - usually three to five. When the lease is up, you can return the equipment, trade it in for newer equipment or purchase it outright.
Equipment Leasing Cost
The cost of leasing equipment depends on the value of the equipment, the length of the lease and your credit history. With good credit, a $10,000 piece of equipment will cost about $325-$375 per month for three years or $200-$250 per month for five years.
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Equipment Leasing Pros
- Few, if any, upfront expenses - Leasing is a great option if you’re short on cash or if you need to conserve working capital for other expenses. Most leases do not require a downpayment. When a downpayment is required, it’s usually small.
- Easier to obtain - Leases are also attractive to businesses with less-than-perfect credit. They’re much easier to obtain than traditional business loans. Poor credit is not necessarily a deal-breaker, although you’ll pay much higher interest.
- Eliminates the problem of obsolescence - With a lease, you can trade in your equipment for a newer model every few years by signing a new lease. You’ll never be stuck with obsolete technology. This is particularly beneficial when it comes to computer equipment because the technology is constantly changing and improving.
Equipment Leasing Cons
- Lack of ownership - When the lease term is up, the equipment must be returned or purchased for an additional sum. Despite having covered the cost of the equipment, you don’t own it.
- Costs more in long run - Leasing is almost always more expensive than buying equipment outright. Essentially, you’re paying a premium for the ability to spread the cost over several years of monthly payments.
Buying Equipment Overview
For other businesses, purchasing equipment outright is a better strategy. Most financial experts will tell you it’s a better idea to purchase outright - if you can. But some companies are not in a financial position to do so.
Buying Equipment Cost
Most companies who decide to buy outright make a single cash payment for the equipment. However, taking out a bank loan is another option. Keep in mind, though, that a bank loan is subject to credit approval and usually requires a significant downpayment.
Buying Equipment Pros
- Cheaper in long run - Buying equipment outright saves you money in the long run. Leasing companies charge a premium for allowing you to make monthly payments over a period of years. With a lease, you could end up paying more than the equipment is worth.
- Ownership - When you buy equipment outright, it is yours to keep for as long as you’d like. You can sell it and buy new equipment when you’re ready - not on a leasing company’s schedule. This is of particular advantage when the equipment you’re buying has a long lifespan.
Buying Equipment Cons
- Obsolescence - When you purchase new equipment - particularly high-tech equipment - you run the risk that it could be obsolete in just a few short years. You won’t have the option to simply exchange it for newer equipment in a few years, as you would with a lease.
- Costs more upfront - Purchasing equipment requires a large upfront expenditure, which can have a negative impact on your company’s cash flow. For companies that are short on cash, buying may not be an option.