Lease versus Buy

Essay by Kaprina November 2006

download word file, 5 pages 0.0

Downloaded 139 times

When an individual is trying to decide whether or not to lease or buy, he or she needs to know the purchase cost, the lease cost, as well as the interest rate of a loan that will be used to purchase the item. The residual value of the item also must be known up front to help determine if leasing is the better option. When determining whether to lease or buy, the cash flow for both should be compared so the best decision can be made. Below is a chart on lease vs buy. (; Retrieved November 6, 2006)


Cash Flow - Usually better from a short-term cash flow perspective. Frees up cash for other purposes while you generate income to pay the leases. You pay less overall but need to have available cash. Financing as an alternative costs more than a lease.

Tax Treatment - If properly structured, a lease may give your company a larger expense write-off than a purchase.

Consult your tax advisor. Depreciation write-off is based on IRS rules for the type of equipment that you are buying. Consult your tax advisor.

Upgrades- Many lease companies let you upgrade to newer equipment during the term of the lease without renegotiating.

If you need newer equipment, you are on your own. However, simple upgrades (RAM, hard drive, etc.) cost you only whatever the upgrade is.

Equity- At the end of a lease, you don't own the property, and you will need to replace it or buy it from the lease company.You own the equipment and can do with it whatever the needs of your business dictate.

Disposal - The lessor is responsible for whatever it costs to dispose of the equipment. You are on to your next set of computers. You can use the equipment...