While numerous businesses gain from equipment leasing, there are a few instances where an outright purchase is a far more cost-effective choice. To make things simpler, let us identify the factors that have to be compared to be able to know which is a better option for your business.
The vital factors include:
- Amount funded
- Purchase rate
- Yearly depreciation
- Inflation and Tax rates
- Device use
- Monthly lease expenses
- Maintenance and ownership costs
Usually, an equipment lease is a perfect option for devices that need updating, regularly, like electronic devices and computers. A lease provides the option of getting the latest equipment conveniently with a low upfront expense, as well as, pre-determined monthly payments that for the company can surely afford. At the same time, this low-priced payment schedule, also, provides a broader variety of alternatives for numerous companies with regards to the availability. Leasing makes it possible to own devices that would otherwise be too expensive to buy right then and there.
However, the use of the equipment has a paying interest, which could add to the total cost of a machine in the long run, making it more expensive than if it was purchased outright, especially when you end up purchasing the devices at the end of the lease. On top of that, some lessors have implemented a length of term which contributes additionally to the cost if the length of the lease extends beyond the requirement. In this particular circumstance, you may get stuck to a storage cost and monthly payment, especially is the device is left unused. Acquiring an item by purchasing it in an outright manner is the other alternative, and one that is frequently selected by those who need constant customizations built into a machine. When you have a piece of equipment, you could have it personalized to match your specific needs- a feature that isn’t present with a lease agreement. Also, some purchasers are opting to go with other alternatives as they are not bound by a long list of limitations from the lessor.
Purchases, contrary to what most people say, enable businesses to have problems fixed right away, without having to wait for approval from the lessor or leasing specialist. And in addition to the depreciation tax benefits, you could also enjoy some return of cash through reselling the equipment when it’s no longer of use to the business.
Nevertheless, just like a lease, purchases have their downsides, also. The most common is obsolescence. With a purchase, you are going to be stuck with the out-of-date equipment up until you gain the ability to purchase a brand-new equipment. Moreover, the cost of having it maintained and repaired is such a baggage to the overall expenses of a business. In some estimates, company’s budget between 1% to 3%of their sales for maintenance costs alone. While this is a rough cost estimate, the actual expenses incurred by the devices itself due to equipment age, service hours, warranty and quality is still a large figure.
Provided that the market is competitive and that tax incentives are available, typically, this is sufficient to inform millions of individuals and companies about cons of purchasing outright.