While leasing is advantageous for many businesses, in some cases purchasing equipment outright is more cost-effective. Consider the following factors when comparing buying versus leasing:
Cost of acquisition
Financed amount
Depreciation is calculated on an annual basis.
Inflation and tax rates are both important factors to consider.
The cost of a month's lease
Costs of ownership and upkeep of equipment
What are some of the advantages of leasing?
A lease is ideal for equipment that needs to be upgraded on a regular basis, such as computers and other electronic devices. Leasing allows you to obtain the most recent machinery at a low upfront cost, and with a fixed rate, you can budget your monthly payments.
At the same time, leasing gives businesses access to a wider range of equipment options. Leasing allows you to afford equipment that would otherwise be too expensive to buy.
What are the disadvantages of leasing?
Leasing necessitates the payment of interest, which raises the overall cost of the machine over time. Leasing can sometimes be more expensive than buying the equipment outright, especially if you buy the equipment after the lease term has expired.
Furthermore, some lenders impose a minimum term length and mandatory service packages. This can increase the overall cost if the lease term exceeds the length of time you require the equipment. In this case, you may be stuck with a monthly payment as well as storage costs for unused equipment.
What are the benefits of purchasing?
You can customize a piece of equipment once you own it. With a lease, this isn't always true. Buyers, likewise, are not bound by the restrictions imposed by the equipment lessor.
Because you don't have to wait for approval from the leasing company to schedule a repair or order a replacement part, purchases allow you to resolve any issues more quickly. You can recoup some money by selling the equipment when you no longer need it, in addition to the depreciation tax benefits available through Section 179.
What are the cons of purchasing?
Purchasing, like leasing, has disadvantages. The most significant is obsolescence; when you buy something, you're stuck with it until you replace it. Furthermore, market competition and the availability of tax incentives with leasing often deter many business owners from buying equipment outright. Maintenance and repair costs, as well as a high purchase price, may put your company under too much financial stress.
According to some estimates, businesses allocate 1% to 3% of sales to maintenance costs. However, this is only a guess. The actual maintenance costs are determined by the equipment, service hours, ages, quality, and warranty.