Is Equipment Leasing Best for You?

When considering whether to lease or purchase equipment, it is important to weigh the disadvantages of equipment leasing with its pros. There are several aspects of the equipment leasing process which may sway your decision on whether or not to lease. These include higher cost through set payments, equipment equity, equipment depreciation and maintenance requirements.

Leasing can be more expensive

Initially the total cost you will pay for leased equipment is greater than the cost of purchasing, due to interest applied to payments. A $30,000 dollar appliance at an interest rate of 8% could total $35,856 on a three year lease.

Lease payments continue on contract

Whether or not you use the equipment, lease payments continue to be made each consecutive month. It is difficult to get out of a lease other than paying the remaining balance early.

You do not have equity on leased equipment

The equipment lessor owns the equipment until the end of the lease term, and thus retains equity. This can prevent you from receiving certain tax benefits that only the owner of the equipment can receive.

Equipment depreciates

You may opt for a dollar buyout option at the end of a lease. This would give you equity of the equipment, but if it has already depreciated significantly by this time and the advantages of having equity are diminished. It can also be difficult to get rid of the equipment once it has depreciated.

You still bear maintenance responsibility

Maintaining equipment can be expensive depending on the type of equipment. It may also be more expensive to neglect leased equipment by the end of the term.

Leasing equipment may be smart in some situations, but it is difficult to know if you do not understand the downside to leasing. Weigh both sides of the argument before deciding whether or not to lease because the success of your business is your highest priority.