Business Opportunities Weblog

Leasing Equipment Versus Buying

By on January 3, 2006 in Ideas

Cash Flow Blog:

When you buy a piece of equipment or vehicle, you usually have to pay for it in full either by using cash or by financing the balance. After you finish paying for it, you own it.

Equipment leasing, on the other hand, is essentially a loan. The lender buys and owns the equipment and then “rents” it to a business at a flat monthly rate for a set number of months. At the end of the lease, the business has several options. It can purchase the equipment for its fair market value (or a fixed or predetermined amount), continue leasing, return it or lease new equipment.

With a lease, you actually only pay for using the equipment. But at the end of the lease period, you could end up owning nothing. So why lease? The answer is simple: By leasing equipment, you leave money in the bank that can be used for other purchases. Since lease payments are usually smaller than regular loan payments, you don’t have to pay out as much each month.

However, keep in mind that a lease is not cancelable like a bank loan or other debt. If you need to get out a standard loan you can sell the equipment and pay off the loan, or even refinance it. With a lease, you generally have to pay off the lease in full. So you have to be sure you make the payments when you enter into a lease.

via eVenturing.

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Business Opportunities Weblog editor and publisher Dane Carlson lives in the Sierra Nevada mountains of California, just 15 miles from Yosemite National Park. He accidentally became a professional blogger in 2001. He has added 12,208 posts to the site.

Another Idea: How to Start a Office Equipment Leasing Business

  • http://www.pandemicsoul.com/blog Jordan

    The last part is not ENTIRELY true. I work for an auto finance company, and there are ways around the fact that you can’t “cancel” the debt.

    But basically getting rid of your leased vehicle (for example) is a lot like getting rid of your “owned” auto — just a few more steps.

    One way is to take advantage of a “transfer of lease” option, if your leasing company has it. You pay a fee, and then the person who is going to take over your lease has to qualify for financing with the company. This is how swap-a-lease and stuff like that work.

    You can also sell the vehicle in leasing, as well. For us, we just send the title to the company that sends us the payoff check. So have the buyer’s finance company send in the check (speak with your leasing company about it first, of course, to work out the details) and then the title will go to them.

    Like was mentioned, there are options to pay out of a lease early, as well.

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