About Leasing

Just a few decades ago, most equipment was financed through bank loans. Today, leasing accounts for the vast majority of equipment financing.

A Lease is a contract in which the owner (Lessor) permits the user (Lessee) the use of the equipment for a period of time (Term) in exchange for a series of payments.

There are, broadly speaking, two types of lease contracts. The primary differences involve tax savings and transfer of ownership.

Equipment vendors also provide financing to support their sales efforts. There are some pitfalls with vendor financing that you should be aware of.

There are significant tax savings to leasing. The tax benefits for a typical capital lease can be calculated for your equipment purchase price using our Tax Savings Calculator. (You should consult your tax professional for detailed advice.)

Comparison of Capital and True Leases

  Capital Lease True Lease
Residual Value of Asset Payments cover the total cost of the asset. Payments take residual value into account.
Lease Payments Higher than a true lease. Lower than a capital lease.
Maintenance and Insurance Responsibility of Lessee. Lessor may require higher cost insurance or maintenance.
Ownership Lessee may acquire the asset. Price usually below market value. Asset returned to Lessor at end of lease.
Early Termination
(during lease period)
Usually not allowed. Sometimes allowed.
Primary Lease Period Most of the asset's useful life. Shorter than a capital lease of the same asset.
Secondary Lease Period At a nominal rental. At market cost based on the asset's current market price.
         
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