Should you Lease or Buy?

When looking to purchase equipment, the lower monthly cost of a lease may be enticing, but what is that lease truly costing you and your business when compared to a loan?  Below you have a calculator which can help you determine just that.  Let’s look at the information you will need to fill out.

Total Purchase Price is the amount you are paying for the equipment without any taxes. The base price of the actual equipment.
Sales Tax Rate is the tax you will pay based on the state you live in. For Virginia, you have personal property taxes annually on the purchase versus sales tax.
Down Payment is the amount you will put pay out of pocket to complete the transaction.
Investment Rate is the amount you could earn on that money if you weren’t paying anything. If you want to use the S&P stock market average, 6.6% to 7% is pretty average, but this in no way means that future results will be the same as past results (I am not giving financial advise).

LOAN

Length is the term of the loan in months.
Interest Rate is the percentage your finance company will charge
Other Fees include a maintenance service plan, application fee, or any other amount that will be financed.
Annual Depreciation is the amount of the total asset you will depreciate (expense) on taxes. Useful life of 5 years would be 20%, Useful life of 4 years would be 25%, and useful life of 10 years would be 10%.

LEASE

Length is the lease term in months
Interest rate is the annual interest rate for your lease. You can back into this amount if they don’t have it using a payment calculator found here.

Other fees are any fee, other than a capital reduction or down payment, required to be paid at the close of the lease.
Residual percent for leases is the remaining value after the lease term expires stated in a percentage of purchase price. The higher this amount, the lower your lease payment will be.
Security deposit assumes a full refund of the security deposit at the lease end.

Loan or Lease

If you want the results in email format, the calculator will send it to you, this does not sign you up for future mailings from Home Time Bookkeeping. Or you can just push calculate and it will give you the results.

In conclusion, individual results may vary when doing this calculation.  However, the more informed you are when making a decision the smarter the decision will be. What did your results show? Should you lease or buy your next piece of equipment?

Length is the lease term in months
Interest rate is the annual interest rate for your lease. You can back into this amount if they don’t have it using a payment calculator found here.

Other fees are any fee, other than a capital reduction or down payment, required to be paid at the close of the lease.

Residual percent for leases is the remaining value after the lease term expires stated in a percentage of purchase price. The higher this amount, the lower your lease payment will be.

Security deposit is assumed that the security deposit is fully refunded at the time the lease ends.

 

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