Leasing vs buying is not an ideology — it is an arithmetic problem with a tax overlay and a cash-flow constraint. Bank guides (Huntington, Regions) list pros and cons; almost none run the same machine through every structure. This page does: one $50,000 machine, four ways to acquire it, with taxes and equity counted, then a decision table by business situation. Run your own machine through the leasing calculator and the loan calculator with the same method.
General information, not financial or tax advice.
| Cash purchase | Equipment loan (20% down, 8%, 60 mo) | FMV lease (36 mo, then buy at FMV) | $1 buyout lease (60 mo) | |
|---|---|---|---|---|
| Cash upfront | $50,000 | $10,000 | ~$1,050 (first month) | ~$1,300 (first month) |
| Monthly payment | — | $811 | ~$1,050 (36 mo) | ~$1,062 |
| Total paid over horizon | $50,000 | $58,668 (incl. down) | ~$37,800 + ~$15,000 FMV buy ≈ $52,800 | ~$63,700 |
| You own it at year 5? | Yes | Yes | Only if you buy it | Yes |
| Equity/resale value | Full | Full | None until bought | Full |
| (Loan interest here is $8,668; lease payments are illustrative mid-tier factor rates — compute your machine. For reference, Wolters Kluwer’s published case study reaches the same shape of verdict in current dollars: buy $32,204 vs lease $34,838 — buying won narrowly on pure cost; the lease won on cash preserved.) |
| Your situation | Likely winner | Why |
|---|---|---|
| Cash-rich, machine lasts 10+ years | Buy (cash or loan) | Lowest lifetime cost, full equity, no term traps |
| Cash-tight, machine earns immediately | Loan or $1 buyout | Ownership with manageable upfront; lease if approval is easier |
| Technology refreshes every 3–4 years (IT, medical imaging) | FMV lease | You are renting the useful years; obsolescence is the lessor’s problem |
| Weak/new credit | Lease (often easier approval) | Lessors weigh the equipment’s resale value more than your history (progressivecommercial’s lease-favouring profile) |
| Need the balance sheet clean / preserve credit lines | Operating lease | Keeps bank lines free for working capital |
| Seasonal revenue | Loan with seasonal terms, or lease with structured payments | Structure beats structure-type here |
Is it cheaper to lease or buy equipment in the long run? Buying, in most long-holding scenarios — Regions’ FAQ gives the standard shape: leasing costs less upfront, buying may be cheaper over the equipment’s life. The worked example above shows the honest margins: real, but rarely enormous — cash flow and obsolescence usually decide.
Can you deduct lease payments on your taxes? Yes for a true (operating/FMV) lease — payments are deductible as a business expense. A $1 buyout lease is treated as a purchase for tax purposes (depreciation + interest instead), per the treatment The Hartford and Dental Economics describe.
Do you build equity when you lease equipment? No — progressivecommercial and Nolo both list “no ownership/equity” as the core leasing drawback of an FMV lease. Equity builds only via purchase structures (loan, cash, $1 buyout, or exercising a buyout option).
Is leasing better if my business has little or no established credit? Often yes — progressivecommercial lists unestablished credit as a lease-favouring profile, because the lessor’s security is the equipment itself. Expect a higher factor rate to price the risk (leasing calculator).
What happens if I stop using leased equipment before the term ends? You remain obligated for the full lease period, with early-termination fees — Nolo states it flatly. This is the lease’s sharpest edge, and the reason term length should match the equipment’s certain-use period, not its hopeful one.
General information, not financial or tax advice. Sources: Regions Bank and Huntington guides; Wolters Kluwer leasing-vs-purchasing case study; Nolo; The Hartford; Progressive Commercial (questions). Reviewed 2026-10-22.