Pros and Cons of Leasing vs. Buying Equipment | QuickBooks (2024)

FAQs

What are the advantages and disadvantages of leasing equipment? ›

Leasing has some great financial benefits, such as lower payments and not being saddled with an outdated piece of equipment. But buying, on the other hand, may be more affordable in the long run, and you have an asset you can then sell.

Purchasing equipment means you are in charge of covering maintenance and repair costs. But it also means you can schedule maintenance for when it's more convenient to your company's timetables or cash flow. Leasing allows you to avoid these costs altogether since they're included in your monthly payments.

Leasing capital equipment: Lowers upfront costs, compared to buying equipment outright. Reduces the chance that your company gets stuck with obsolete equipment, if your contract specifies upgrades. Transfers the cost of equipment maintenance to the leasing company, again according to the terms of your contract.

On the one hand, buying involves higher monthly costs, but you own an asset—your vehicle—in the end. On the other hand, a lease has lower monthly payments and lets you drive a vehicle that may be more expensive than you could afford to buy, but you get into a cycle in which you never stop paying for the vehicle.

Some equipment purchases can cost thousands or hundreds of thousands of dollars and require a major outlay of capital. Leasing allows for payments and maintenance costs to be stretched out over a longer period of time.

Benefits of leasing usually include a lower up-front cost, lower monthly payments compared to buying, and no resale hassle. Benefits of buying usually are car ownership, complete control over mileage, and a firm idea of costs. Experts generally say that buying a car is a better financial decision for the long term.

It Might Not Save You Money

Yes, you can sign a long-term lease, but that may negate the monetary benefits of leasing instead of buying a car. That's because leasing typically costs you more than what you might have taken out in a long-term car loan.

Leasing offers advantages such as lower upfront costs, flexibility, and bundled maintenance, while buying assets provides long-term cost savings, ownership equity, and customization options. Ultimately, the choice depends on factors such as capital availability, anticipated usage, and industry dynamics.

Why might companies choose to lease rather than buying an asset outright? ›

Here are some of the biggest reasons why companies prefer to lease: You get more purchasing power. There are 100% finance options. You're not responsible for maintenance and repairs.

There are many advantages of leasing over buying equipment such as maintaining cash flow through a fixed payment schedule and low monthly payments, remaining competitive without obsolete technology, and flexible end of lease options.

Disadvantages of leasing or renting equipment

you may have to put down a deposit or make some payments in advance. it can work out to be more expensive than if you buy the assets outright. your business can be locked into inflexible medium or long-term agreements, which may be difficult to terminate.

The biggest advantage of leasing is the low initial investment. Instead of paying for the vehicle itself, you pay for the portion you use. There's no obligation to pay the full value, and the upfront payment is significantly lower.

The key benefit of a lease is that you don't need to pay everything upfront. Instead, your cash flow is spread over the term of the lease. It may even be possible to structure your payments to match the cash flow benefits you expect from the asset.

Reduced Maintenance Costs

Leasing not only helps save money as you acquire equipment, but it can also reduce your maintenance costs. Typically, the equipment vendor will assume maintenance responsibilities as part of the lease. This prevents your organization from surprise expenses if equipment breaks down.

Cons of Equipment Leasing

The cost is typically the depreciated value at end of lease. Some leases have $0 buyouts at end of lease which would be preferable. There might be less flexibility with modifications and repairs as the consent of the leasing company is often required.