Equipment Lease vs Buy Calculator
Compare total cost of leasing vs buying business equipment.
What this calculator does
This calculator compares the total after-tax cost of leasing a piece of equipment against financing its purchase. Enter the equipment cost, down payment, loan rate and term on the buy side, the monthly payment and term on the lease side, and your tax rate, and it returns the total cost of each route along with a recommendation.
The comparison matters because the two options are quoted in incompatible units. A lease is a monthly figure, a purchase is a capital outlay plus finance, and the tax treatment differs on both. Reducing them to a single after-tax total is the only way to see which is actually cheaper.
When to use it
Run it whenever a vendor offers financing alongside a cash price, which is standard for vehicles, production machinery, medical devices, and commercial kitchen equipment. Vendors present the lease as a manageable monthly number precisely because it discourages comparison with the purchase total.
It is also the right tool when cash is the constraint rather than cost. Sometimes leasing loses on total cost by a clear margin and is still correct, because the down payment on a purchase would leave the business without a buffer. The calculator does not make that judgment for you, but it prices the flexibility so you know what the decision is costing.
Understanding the inputs
Equipment cost should be the delivered and installed price, not the list price. Down payment is what you put in up front on the buy route; asset-backed equipment loans commonly ask 10 to 20 percent.
Enter the loan rate as quoted and the term in years, keeping it within the equipment's useful life. On the lease side, use the monthly payment and term exactly as offered. Tax rate should be your marginal effective rate — 21 percent for a C-corp, or your personal marginal bracket if income passes through an S-corp or LLC, since that determines what any deduction is actually worth.
How is this calculated?
Lease Total = Monthly × Term. Buy Total = (Down + Total Interest) − Tax Depreciation Benefit − Residual. Compare after-tax total cost.
A worked example
A machine costs $85,000. Buying means $15,000 down and $70,000 financed at 9 percent over 5 years, giving payments of about $1,453 a month and total outlay near $102,200. A Section 179 deduction at a 21 percent rate returns roughly $17,850, and the machine is worth around $20,000 at year five, so the net cost is approximately $64,300.
Leasing at $1,650 a month for 60 months totals $99,000. Payments are fully deductible, worth about $20,800 in tax relief, leaving a net cost near $78,200. Buying comes out roughly $13,900 cheaper — but demands $15,000 up front and leaves you owning a five-year-old machine.
Limitations and assumptions
The model excludes maintenance, insurance, downtime, and disposal costs, all of which can be substantial and often differ between the two routes. A full-service lease bundling maintenance may be closer in cost than the raw comparison suggests. It also uses a simple residual assumption rather than a genuine market valuation.
It does not discount future cash flows, so it undervalues the fact that lease payments are spread over time while a down payment is due immediately. Nor does it capture ASC 842 balance sheet treatment or the effect on your borrowing capacity. Use it to establish the shape of the decision, then have your accountant model the tax position properly before committing capital.
Common Questions
- When does leasing beat buying?
- Leasing wins when the equipment obsoletes quickly, when cash is scarce enough that the down payment would strain operations, or when you genuinely need to hand the asset back at term end. Buying wins when the equipment has a long useful life and meaningful residual value, which covers most machinery, vehicles, and fit-out.
- What is Section 179 and how does it change the math?
- Section 179 lets you deduct the full purchase price of qualifying equipment in the year it is placed in service, rather than depreciating it over years. The deduction limit is high enough to cover most small business purchases. It pulls the tax benefit of buying forward dramatically and often decides the comparison on its own.
- Are lease payments fully deductible?
- For a true operating lease, yes — payments are an ordinary business expense. A capital or finance lease is treated as a purchase for tax purposes, so you depreciate the asset and deduct the interest instead. The label on the contract matters less than the substance, so confirm the classification with your accountant.
- How should I estimate residual value?
- Look at actual auction and dealer prices for the same equipment at the age you plan to own it. Machinery often retains 25 to 40 percent after five years, vehicles vary enormously by type, and computing hardware is close to worthless. Overestimating residual is the most common way this comparison gets rigged toward buying.
- Does leasing keep debt off my balance sheet?
- Not since ASC 842. Operating leases with terms over twelve months now appear as a right-of-use asset and a corresponding liability. The old off-balance-sheet advantage is gone, so if a lender told you leasing protects your ratios, check whether that advice predates the standard.
- What is the effective interest rate on a lease?
- Leases rarely quote one, which is why they can look cheap. Take the equipment's cash price, the payment amount, the term, and the residual, and solve for the implied rate. It is frequently several points above what a bank would charge, and finding that number is the single most useful step in the comparison.
- What happens at the end of a lease?
- Depends on the structure. A fair market value lease lets you return, renew, or buy at the then-current price. A dollar buyout lease transfers ownership for a nominal sum but carries higher payments and is really a purchase. Read the end-of-term clause first — automatic renewal traps are common and expensive.
- Should I lease if I plan to grow quickly?
- Often yes, but for capacity reasons rather than financial ones. Leasing lets you scale equipment up or swap it as requirements change without an asset to dispose of. That flexibility has a real price, so treat it as an option you are buying deliberately rather than a free benefit.
- How do maintenance costs factor in?
- They frequently decide it. Full-service leases bundle maintenance, so the payment covers repairs you would otherwise fund yourself. When buying, budget maintenance and downtime explicitly — for heavy equipment this can run 5 to 10 percent of purchase price annually and is routinely omitted from lease-versus-buy comparisons.