How to use the lease vs buy equipment calculator
- Enter the purchase price, the down payment, the loan rate and the loan term in months.
- Enter how many months you plan to use the equipment. The lease is assumed to run for the same number of months.
- Enter the lease payment, the amount due when you sign and, under advanced options, any lease end fees or a buyout price if you plan to keep the equipment.
- Add what you think the equipment would sell for at the end of the period, then compare the net cost of buying with the net cost of leasing.
Formula
Net cost of buying = down payment + loan payments made + loan balance still owed - value of the equipment
Net cost of leasing = paid at signing + lease payments + end fees + buyout - value if you keep it
Monthly loan payment = loan x r / (1 - (1 + r)^-n), with r = rate / 12 and n = loan months
The loan balance at the end is paid off in the buy column. Money is not weighted by when it is paid, so the comparison is in plain dollars.
A $40,000 machine used for 48 months
You can buy it with $4,000 down and a $36,000 loan at 7.5% for 60 months, which is $721.37 a month. Over 48 months you pay $34,625.76 in loan payments and still owe $8,314.51. You sell the machine for an estimated $12,000. Net cost of buying: $4,000 + $34,625.76 + $8,314.51 - $12,000 = $34,940.27.
The lease asks $1,500 at signing and $780 a month for 48 months, $38,940.00 in all, and you return the machine. Buying costs less by $3,999.73 in this example. If the machine ends up worth $5,000 instead, buying drops from ahead to behind, so the value at the end matters a great deal.
The number that decides it
Most of the gap between leasing and buying comes from the value of the equipment when you are done. Buying leaves you with an asset, and leasing usually does not. If you are unsure, run the comparison with a low, a middle and a high value and see where the answer flips.
The loan term matters too. A loan longer than the period you use the equipment leaves a balance that you must pay off when you sell, and this tool includes that balance in the cost of buying.
What is not included
Tax treatment can be a large part of the real decision. Depreciation, expensing rules and lease accounting differ, and your accountant can tell you which applies. See the depreciation calculator for a way to spread the cost over years.
For cars, the same question has its own page: the lease vs buy car calculator. To see how a loan payment is built, use the loan calculator.
Assumptions and limits
- The lease runs for exactly the number of months you plan to use the equipment.
- The value of the equipment at the end is your own estimate.
- Taxes, depreciation, repairs, insurance and maintenance are not modeled.
- The time value of money is not modeled. Dollars paid early and late count the same.
Frequently asked questions
Is it cheaper to lease or buy equipment?
It depends on what the equipment is worth at the end, the loan rate and the lease payments. Buying wins when the resale value is high enough to cover the extra money paid up front, and leasing wins when the equipment loses value quickly.
What happens to the loan if I stop using the equipment before it is paid off?
You still owe the balance. This tool adds the remaining loan balance at the end of your period to the cost of buying, as if you sold the equipment and paid off the loan.
How do I include a lease buyout?
Open the advanced options and enter the buyout price. The tool then adds it to the cost of leasing and counts the end value of the equipment as yours, since you keep it.
Does this account for tax deductions?
No. Tax rules for equipment purchases and leases differ and can change the answer. This comparison is in pre-tax dollars, so ask an accountant before deciding.