Dear M &M: I am looking to lease some equipment can you tell me the difference between leasing and buying? – Dan
Besides considering the overall cost of leasing vs buying one should consider maintenance, tax deductions and technology consideration. Generally speaking a lease allows one to avoid being stuck with old or outdate equipment. Many times leases come with software or even replacement options or upgrades. Leasing comes with lower upfront down payments and many times comes with maintenance or repair plans during the terms of the lease.
Leasing sounds too good to be true here are some of the downfalls. Leasing usually comes with higher costs then if you would have paid up front. Most leases requires you to pay interest in addition to the leasing costs. Unless there is a buyout clause at the end of the lease, you don’t own anything once the lease is paid off. The equipment gets turned back to the original company or third party.
As maintenance is tied up in a lease one could have trouble getting parts or things fixed if the leasing company is slow about keeping equipment up and running. Sometimes preventive maintenance can be delayed. Availability of choices may be limited when leasing. Let’s look at the other side, buying. If one owns the equipment you can make any alterations, repairs or preventive maintenance when you want to.
When you own something you can sell it when you want to not be tied into a lease with dates and times for expiration. Depreciation deductions can be limited but one should consider Section 179 of the IRS tax code in part of your consideration in leasing vs. buying. Generally buying requires a larger amount of cash outlay and monthly payments generally are lower on a lease.
If you are considering purchasing equipment that can be outdated if you own it you are stuck with it. As always each situation is unique explore both sides anytime one leases or purchase any equipment. Bring in the accountants and the attorneys so you understand your options.