When you have a short-term project or just need to hold on to available capital, leasing equipment can be beneficial. You can lease equipment for home repair, business, or other projects. Leasing saves you from buying the equipment yourself, but it does have a downside.
Total Cost
Leasing equipment is almost always more expensive than actually purchasing it. When you consider leasing equipment, multiply the amount of the monthly lease payment by the amount of payments you will agree to make. This will allow you to see how much you are paying for the use of the equipment over time.
Contract Issues
You will have to pay for the lease of the equipment for the entire term, even if you stop using it. In the event your lease gives you the option to terminate, you will probably pay early terminations fees to get out of the contract.
Maintenance
Leases may dictate that you return the equipment in good condition. This means that if it breaks down, you have the responsibility to have the item repaired. This can be costly, and you will be paying for maintenance of a product that doesn’t belong to you.
Taxes
When you own a piece of equipment for business purposes, the IRS may allow you to take tax benefits for depreciation of the item. If you lease an item, you may lose this tax benefit. Check with your accountant, as you may be able to deduct the rental payments and offset the loss of not being able to take the depreciation tax benefit.
Ownership
When you lease equipment, you are not building any equity in the item. In some instances, the value of the equipment increases. You lose out on the profit that you could have gained by reselling it because someone else owns it.
Credit
Leasing equipment can have an affect on your financial statements. If you purchase equipment on credit, the equipment will show as an asset and balance out the amount of the payment, which counts as a debt. When you lease equipment, you only have the amount of the expenditure, which may count as a debt or business liability with no corresponding asset to balance it out.
Additional Expenses
Some leases allow you to purchase the equipment at the end of the lease, but that is on top of what you have already paid for the lease itself. Being locked into a lease ties up your funds, limiting your ability to use your money for more significant expenses that may come up.
Tags: lease equipment, asset balance, purchase equipment, When lease, When lease equipment
