Before you make a decision to lease or purchase equipment or products
(e.g., copier, computer, phone or software system), there are a number
of factors to consider.
More than a financial decision.
Leasing equipment is almost always more expensive than purchasing the
equipment, even if you have to borrow the money to buy the equipment.
For example, if the purchase price of equipment is $3,500, the lease
is likely to be about 40% higher (simply multiply the per-month lease
payment times the number of months, e.g., $130/month times 36 months
is $4,680). This is a basic way to see the relative costs. A
more accurate calculation should include the cost of borrowing money
and the option to buy at the end of the lease term.
Leasing companies make large profits on equipment leases.
Leasing companies are not pleasant, or even reasonable, to deal with.
They want their money every month whether or not the equipment works.
So, if you have problems with leased equipment, be prepared for a fight.
However, there are times when leasing equipment makes sense.
Leasing Credit Card Machines.
- Consider Cash flow.
Purchasing equipment requires cash up front (this consumes cash that
may be needed for other purposes). Leasing allows an affordable monthly
payment (which is essentially financing by the leasing company).
- Consider Service/Repair Requirements.
How complex is the equipment? How frequently is service likely to be
I decided to lease my copier, although it was the more expensive option,
because service was included in the lease price. I knew from prior
experience that copiers with auto-feed and collating capabilities require
service on an on-going basis, and that service calls are expensive.
I thought that leasing would assure me the service that I needed, all
included in the monthly fee.
Even so, I had to fight the leasing company when my copier was out of
service for two months because the repair people did not replace the
feeder in a timely manner. I refused to pay for equipment that was
not working. It was a battle. I won because the copier company interceded
with the leasing company and my account was credited.
If I had purchased the equipment, I would have had a warranty. I would
still have had to make arrangements for repairs under the warranty,
which can be difficult and expensive. So, availability of repair services
is an important factor, depending on the size and location of the equipment.
Checking on the repair history of your product may help you decide
whether lease or purchase is the better option for you.
- Consider life of equipment.
How likely is the equipment to become obsolete in a few years? The
shorter the useful like of the equipment, the more attractive the leasing
option. You can usually upgrade under a lease, replacing the old equipment.
I advise against leasing a credit card machine over a long
period of time. A 48-month lease for a machine locks you
in for a long time and the service may or may not be good.
Leasing from a bank on a monthly basis (no long-term commitment) is a viable
option. If there's a problem with the equipment, it is repaired or replaced
promptly and you're supported by local people. If the service is disappointing,
it's easy to change. Purchasing credit card equipment outright is the cheapest
option, but you have to handle any repairs.
So, leasing is attractive in some situations. It makes expensive equipment
affordable. The downside is what happens if the equipment doesn't work.
Remember, the leasing company will come after you for payment even if the
equipment or product does not work. To them, it does not matter what the
In conclusion, the decision to purchase or lease is a business decision
in which a number of factors should be considered. It is more than a financial
decision. Before you sign, be sure you understand what your remedies are
if the equipment or product does not work as represented.
Jean D. Sifleet, Esq., CPA
Business Attorney & Consultant
120 South Meadow Road
Clinton, MA 01510