Leases can appear to be a better deal if you only look at the cash payments to service vs a standard loan. Also leases frequently will show a lower lease(think interest) rate than will loans but that can be misleading as well. The real issue with leasing is that the initial payment is on the front end of the contract. That has the effect of lowering the funded balance the creditor has to invest and consequently they can show a lower rate to lease but still be making more money. Also the lease payment can be manipulated buy changing what the buyout at the end of the lease will be. The higher the buyout the lower the payment can be. Also with a lease you can be giving over any advantages of depreciation on a piece of equipment to the lease company. Especially if there are opportunities to accelerate depreciation such as Section 179.
The only way to compare a loan to a lease to determine which might be better is to do a time value of money study of both alternatives also taking into account the above mentioned tax considerations.
I used to sell loans and leases and the leases were always a better deal for the banks. Also one last note on commercial credit contracts (loans or leases), the lender does not have to give the same disclosure of APR as they have to do for consumer loans. This basically would be the time value study done for you but again commerical loans don't require this to be done.
That being said there are times and places when a lease could be the better econmic choice. But it has more to do with rather unique pieces of equipment that you may not desire to keep at the end of a lease period or when the tax considerations benefit a lease.
My advise is entirely dependent on the quantity and quality of your existing business, the amount of cash reserves you have to fall back upon and other issues related to the security of your business. Hope this helps. :hi:
Lease or Loan better than draining you bank account.
There are pros and cons to a lease. If they try to tell you the lease has so called tax advantages don't believe it. A buyout lease is treated the same as a bank loan by the IRS. I found this out AFTER I leased my truck mount. The real advantage of a lease is only the equipment that is included in the lease such as the truck mount will be collateral. With a bank loan they take your van and everything in it as collateral so if you default you lose everything. I could have gotten a much better deal interest and price wise by going through my bank for a business loan, but did not like the idea of having to turn over all of my business assets for collateral. I easily paid over an extra thousand dollars on the lease for my Boxxer 421, but if something had happened and I fell on hard times that would be the only thing that could be repossessed and not all my equipment and my van to boot. If you are asking whether or not you should buy the equipment outright as opposed to a lease or a loan for that matter I strongly suggest keeping your money in the bank and let the equipment pay for itself. Personally I would far rather have 20,000. or 30,000. in the bank drawing some interest and make payments on new equipment from my earnings. Equipment is an investment in your business and whether you take a loan or a lease you will depreciate that equipment out over 5 years. This is my strategy. Some people just can't stand the idea of debt, but unless you really have some serious cash saved up I would keep what you have in the bank and take out a lease or a loan. Either of those options is better imho than draining your bank account unless you have enough it the bank to buy it outright w/o depleting your finances too badly. I hope this helps.
I always do what is a lease purchase. You can write it off like a lease, the sales tax is in your monthly payment, and there are no mileage or wear and tear restrictions. At the end of the lease you own it for what ever residual buyout you negotiated at the beginning of the lease. For example: do you want to lease 50-60-70-80-90- or 100% of the vehicle. If you know you want to keep it forever keep the residual low. If you only want to run it for a year or three, set a high residual lease only what you use and sell it or trade it in. Works for me. I would much rather make money with some banks money, than take my own hard earned cash to make money. Also if you don't keep the vehicle, you only paid the taxes on it for the time you used it as opposed to a straight finance the tax is more likely to come off the top, or out of your down payment.
If there is anyway possible that you can finance it and not lease it you would be much better off....
Most ( not all read the fine print ) financing companies will let you pay it off early and you can save some money in the interest
Almost all leasing companies will make you still pay full price even if you pay it off early....
Most finance company's have much lower interest rates and you will have no balloon payment at the end.....
Also by financing it.( this is an AZ law so you might want to check it out where you live also ).you will save money and not have to pay property tax on the unit....When you lease something it belongs to the leasing company..so property tax kicks in.....
Leasing is like renting with the option to buy...
Financing it is more like ownership....so ( if done correctly ) you can save a hell of a lot more in the end....
Cash only here..... That is the way I have gotten my last two machines. I did a lease once and paid 100% more than the cash price. 5K turned into 10K! Never again.... If I did not have cash I would finance through a bank.
Depends a lot on your financial situation, how your business is set up, if you plan to grow and expand your business over the next few years, how often you replace the truckmount, etc.
Many considerations are similar to buying versus leasing a car. If you like to have th newest, top of the line equipment and will be replacing the unit in 3 to 5 years, then leasing has some advantages. If you plan to keep the TMN and use it untils it falls apart in a pile of dust, you may be better off buying and financing if necessary.
Leasing allows you to keep cash on hand for future growth, to purchase supplies in bulk and save money or to get over short term slow downs in business such as a slwo winter season. Financing shows up on your credit record or maybe your businesses credit rating. That depends on how the business is structurted, sole proprietorship, corporation or something else. The effect on your credit rating for several years can have many unexpected consequences. Leasing does not show up on your credit record.
Some companeis include 2 or even 3 years of maintenance and service with a lease. This makes sure you keep it in good shape. It also means you don't have to pay out of pocket for a lot of expenses.
Paying cash can save money. However, it dedicates cash reserves to pay for long term assets. This can have unwanted consequences to balance sheet and fiancial statements. If you depend on good financial statements to borrow money for future growth, paying cash can actually backfire.
An accountant can help you sort through the possible outcomes for your particular situation.
BTW - This is a good time to decide if purchasing assests (van, truckmount, other equipment) for deduction under section 179 of the Internal Rewvenue Code would be right for you. If you need to spend on equipment or pay to Uncle Sam where would you prefer to put your money?
Depend of what volume of work you have now. If you can afford lease plus all the other expenses you have plus to have some profit for yourself, maybe yes get the lease option.
If you got money saved just buy it and be a dept free. Dept free is the way I go!