Loan type
Equipment leasing: lower payment, higher total, different risks
Leasing almost always shows a smaller monthly payment and a larger total cost. What decides it is the end-of-lease terms, which is the part nobody reads.
At a glance
| What it is | You rent the equipment for a term rather than buying it |
|---|---|
| Monthly payment | Generally lower than a loan on the same equipment |
| Total cost | Generally higher than a loan, once the end-of-term is counted |
| Who owns it | The lessor, until and unless you exercise a purchase option |
| End of term | Return it, renew, or buy it — and the buyout terms are the whole deal |
| Typical structures | $1 buyout (close to a purchase) or fair market value |
| Personal guarantee | Expect one, as with equipment finance |
A good fit when
The equipment dates quickly, you want to swap it on a cycle, or preserving cash and borrowing capacity matters more than owning the asset.
A poor fit when
You will still want the asset in five years, in which case financing a purchase is usually cheaper overall.
The decision in one line
Will you still want this asset at the end of the term? If yes, buying it with equipment financing is usually cheaper overall. If it dates quickly, or you want to swap on a cycle, leasing is doing a job a loan cannot.
The two structures that matter
| Structure | How it behaves | Watch for |
|---|---|---|
| $1 buyout (capital lease) | Economically close to a purchase — you own it at the end for a nominal amount. | Payments are higher than an FMV lease. Usually sits on your balance sheet like debt. |
| Fair market value (FMV) lease | Lower payments; at the end you return it, renew, or buy it at its then market value. | The buyout price is not fixed. If you intend to keep the asset, this can be the expensive route. |
| $1 out vs. 10% put | A “put” obliges you to buy at a set percentage at the end. | An obligation, not an option. Know which you signed. |
The clause that catches people
Automatic renewal. Many leases renew for a further term unless you give written notice inside a defined window, often 60 to 90 days before expiry. Miss it and you have another year of payments on equipment you intended to return.
Diarize the notice date the day you sign. This is the single highest-return minute of admin in the whole transaction.
Comparing a lease against a loan properly
- Total every lease payment across the full term.
- Add the realistic end-of-term cost — buyout, or return and replace.
- Add any documentation, administration and end-of-term fees.
- Compare that total against the total cost of financing a purchase, including interest, using the loan payment calculator.
- Then weigh the difference against what the flexibility is actually worth to you.
Where leasing genuinely wins
- Technology and anything that dates fast. Owning an obsolete asset is not a win.
- You need to swap on a cycle — vehicles in some fleets, imaging equipment, kitchen equipment under a brand standard.
- Preserving borrowing capacity. Depending on structure, a lease may not consume the same credit lines a loan would. Ask your lender how they will treat it.
- Service is bundled and genuinely worth something, which is common on specialist equipment.
Questions people actually ask
Is it cheaper to lease or buy equipment?
Buying is usually cheaper in total; leasing usually has the lower monthly payment. The honest comparison totals every lease payment plus the realistic end-of-term cost against the total cost of financing a purchase.
What is an FMV lease?
A fair market value lease: lower payments, and at the end you return the equipment, renew, or buy it at its market value at that time. Because the buyout is not fixed in advance, it can be an expensive way to end up owning the asset.
Can I get out of an equipment lease early?
Usually only by paying out the remaining payments, sometimes with an early termination charge. Equipment leases are generally non-cancellable, which is precisely why the term and the end-of-term terms deserve attention before signing.
Does leasing require a personal guarantee?
For a small or young business, expect one, the same as with equipment financing. The lessor owning the asset reduces its risk but rarely removes the guarantee requirement.