Equipment Financing: Leasing vs. Loans Explained
A plain breakdown of when leasing beats buying, what each option costs over time, and what lenders check before approving either one.
Overview
Leasing vs. financing: the core difference
Equipment financing (a loan) means you own the equipment once it's paid off, and it becomes a business asset. Leasing means you're essentially renting the equipment for a set term, usually with lower upfront cost, and at the end you return it, renew, or buy it out.
The right choice mostly comes down to how long you'll actually use the equipment and how fast the technology changes. Below is a breakdown of the two main structures, followed by a cost comparison and where to go deeper by industry.
Main types of equipment financing
Equipment Loan
You own the equipment from day one. Fixed payments, and the equipment itself secures the loan. Best for long-life machinery.
Fair Market Value Lease
Lower payments, and at the end you can return the equipment, renew, or buy it at its current market value.
$1 Buyout Lease
Structured like a loan — you buy the equipment for $1 at the end of the term. Higher payments than a fair market lease.
Pros and cons of leasing vs. buying
Leasing pros
- Lower upfront cost, often $0 down
- Easier to upgrade equipment that becomes outdated quickly
- Payments may be fully deductible as a business expense
Buying pros
- You build equity in an asset you can sell later
- Lower total cost over the equipment's full useful life
- No mileage, usage or condition restrictions at term end
Cost comparison
Leasing vs. loan: typical costs
| Structure | Typical down payment | Typical rate | End of term |
|---|---|---|---|
| Equipment loan | 10%–20% | 6.5%–11% | You own it outright |
| Fair market value lease | 0%–10% | 7%–13% (implied) | Return, renew or buy at market value |
| $1 buyout lease | 0%–10% | 7%–12% (implied) | Buy for $1 |
Ranges are indicative and vary by industry, equipment type and lender. See industry-specific pages below for real comparisons.
By industry
Compare loan options for your industry
Rates, typical loan sizes and the best-fit lenders vary a lot by industry. Each page below has a full lender comparison specific to that sector.
FAQ
Common questions
Is leasing always cheaper than buying?
Not over the long run. Leasing usually has lower monthly payments, but buying is typically cheaper in total if you keep the equipment for its full useful life, since you're not paying to renew or upgrade repeatedly.
Can I write off equipment leases on my taxes?
Often yes — many leases qualify as a fully deductible operating expense. Equipment loans may instead qualify for depreciation deductions. A tax professional can confirm which applies to your situation.
What happens at the end of a lease term?
With a fair market value lease, you typically choose to return the equipment, renew the lease, or buy it at its current market value. A $1 buyout lease is structured so you own it outright at the end for a nominal fee.
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