Leasing vs Buying

765 Words4 Pages
List the advantages and disadvantages of leasing vs. buying. When is one more desirable than the other? Advantages Lower total cost of ownership (TCO): A lease lets the purchaser realize considerable savings compared to an outright purchase or scheduled purchase payments, because the purchaser pays only for the use of the equipment. Leasing also helps reduce the concerns and costs associated with equipment disposal. Reduced risk: At the end of the term, leasing gives the purchaser the option of simply returning the equipment, purchasing it outright or extending the contract. But purchasing involves embracing all the risks as well. Faster implementation: Buying capital equipment often involves a lengthy budget approval process. Choosing leasing can help shorten the process, accelerating the implementation of the solution. More flexible payment options: Different payment structures can be tailored to fit one's specific needs. For example, periodic payments can be structured to increase, decrease or stay constant over time. Purchase payments may be large installments which may be difficult to pay up. Tax Purposes: Lease payments can usually be deducted as business expenses on the tax return, reducing the net cost of the lease. But purchase does not reduce net cost of lease. Availability of expert service: The owner of the equipment maintains the equipment to ensure a sense of ownership thereby taking the burden off the lessee. The purchaser tends to maintain the equipment himself. Test equipment: Lease enables the lessee test the equipment to be sure it is the right one to eventually purchase. On the contrary, purchase might mean buying equipment and realising that it is not what the buyer expected. Disadvantages • The buyer does not own the vehicle; it originally belongs to the lessor. • Fees are usually charged for early termination of lease. However,

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