Transparent method
The formula
Worked example
Example inputs
How to interpret the result
A straight cost comparison between leasing and buying misses real differences the raw payment numbers don't capture, because tax treatment, ongoing maintenance responsibility and the equipment's eventual obsolescence all shift differently between the two structures, sometimes outweighing whatever the base cost comparison alone suggested.
Before you rely on it
What to check
Add tax treatment, maintenance responsibility and expected obsolescence timeline as separate factors alongside the raw cost comparison, not folded silently into one number.
The common error
Where people go wrong with equipment lease vs. buy calculator
Deciding between leasing and buying based on the base cost comparison alone. Tax treatment and who bears maintenance and obsolescence risk can shift the real economics meaningfully in either direction beyond what the raw payment numbers show.
Sensitivity evidence
How equipment purchase price changes the purchase cost advantage
| Equipment purchase price | Purchase cost advantage | Modeled purchase net cost | Modeled lease cost |
|---|---|---|---|
| $120,000 | $92,259 | $92,741 | $185,000 |
| $135,000 | $74,010 | $110,990 | $185,000 |
| $150,000worked example | $55,761 | $129,239 | $185,000 |
| $165,000 | $37,512 | $147,488 | $185,000 |
| $180,000 | $19,264 | $165,736 | $185,000 |
Every input, tested
Which input moves the purchase cost advantage most
| Input | Tested from | To | Purchase cost advantage at each end | Swing |
|---|---|---|---|---|
| Comparison years | 4.0 years | 6.0 years | $25,804 to $85,577 | $59,773 (107%) |
| Equipment purchase price | $135,000 | $165,000 | $74,010 to $37,512 | $36,498 (65%) |
| Monthly lease payment | $2,700 | $3,300 | $37,761 to $73,761 | $36,000 (65%) |
| Equipment-loan rate | 6.0% | 10.0% | $63,404 to $47,899 | $15,505 (28%) |
| Equipment resale value | $45,000 | $55,000 | $50,761 to $60,761 | $10,000 (18%) |
| Lease upfront cost | $4,500 | $5,500 | $55,261 to $56,261 | $1,000 (1.8%) |
| Purchase down payment | $13,500 | $16,500 | $55,436 to $56,086 | $650 (1.2%) |
Two variables at once
Purchase cost advantage by equipment purchase price and purchase down payment
| Equipment purchase price \ Purchase down payment | $12,000 | $15,000 | $18,000 |
|---|---|---|---|
| $120,000 | $91,609 | $92,259 | $92,908 |
| $135,000 | $73,360 | $74,010 | $74,660 |
| $150,000 | $55,111 | $55,761 | $56,411 |
| $165,000 | $36,863 | $37,512 | $38,162 |
| $180,000 | $18,614 | $19,264 | $19,913 |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| Equipment purchase price | $150,000 |
| Purchase down payment | $15,000 |
| Equipment-loan rate | 8.0% |
| Comparison years | 5.0 years |
| Monthly lease payment | $3,000 |
| Lease upfront cost | $5,000 |
| Equipment resale value | $50,000 |
| Purchase cost advantage | $55,761 |
| Modeled purchase net cost | $129,239 |
| Modeled lease cost | $185,000 |
Where the inputs come from
Equipment purchase price and down payment describe the purchase, the loan rate is the financing rate you would pay, and comparison years is the period you plan to use the equipment. For the lease, enter the monthly payment and any upfront cost from the lessor's quote. Equipment resale value is what you expect to sell the equipment for at the end. Be realistic about resale: specialized or fast-changing equipment can be worth much less than hoped.
Using the purchase cost advantage in a real decision
Include maintenance, insurance and the end-of-lease terms in the decision.
When the result stops applying
The model omits taxes: buying may allow depreciation deductions such as Section 179, while lease payments are usually deductible as expenses, and the net tax effect can change the outcome. Lease terms differ: fair-market-value leases, dollar-buyout leases and true leases have different end-of-term costs. Returns fees and wear-and-tear charges are extra.
What to compare it with
Model the loan payment with the business loan payment calculator, and see the straight-line and declining-balance depreciation pages for the tax side. The working capital and cash conversion cycle pages show how much cash the purchase ties up. Ask your accountant about depreciation elections before choosing.
People also ask
Frequently asked questions
Is leasing or buying equipment cheaper?
Buying is usually cheaper over the equipment's life if you keep it, while leasing costs more overall but offers lower payments and flexibility to upgrade.
What is a fair-market-value lease?
A lease that lets you buy the equipment at the end for its market value, or return it. Payments are lower than for a purchase-type lease.
Do tax benefits change the answer?
They can. Depreciation and deduction rules vary by year and by business, so run the numbers with your accountant.