Equipment Lease Factors
First-time buyers, especially young people, of items like cars and computers often face the daunting task of deciding whether or not to lease an item. The choice to lease can afford someone a better lifestyle in the short term, but this often comes at the expense of long-term financial planning. In addition to a pure cost analysis, you should factor in certain intangibles to equipment leasing.
Other People Are Reading
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Identification
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People often confuse leasing and buying. Although leasing and purchasing ultimately put a product in the hands of consumer, the difference lies in equity. Buying something means paying the entire asking price for the item including fees like sales tax. Leasing means you only pay for the right to use the item for a specified length of time. (See Reference 2)
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Short-Term Goals
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Personal short-term financial goals should factor in greatly for those who need as much liquid capital available as possible, according to legal encyclopedia Nolo. (See Reference 1) Leasing tends to have much lower upfront costs than other financing methods. Unlike a loan, leases do not have down payment costs or loan origination fees.
Long-Term Leasing
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Long-term leasing of equipment costs more than a straight-up purchase, according to Nolo. A typical lease lasts from two to four years. If you lease a $1,000 computer for three years, at $30 per month, that totals to $1,080 over the lease term. In this scenario, not only has the customer paid more than the list price of the computer, the person holds no equity in the equipment. Thus, leasing works against long-term saving.
Obsolescence
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While leasing almost always costs more than a purchase, it often makes sense to lease certain equipment that has a high rate of obsolescence, reports Nolo. Companies that make high-tech equipment often come out with new, better versions within a year or two. Some people might value the ability to lease new equipment every few years, rather than own a cheaper, but soon obsolete, product.
Considerations
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People often forget to factor in tax deductions and credits when calculating the cost of leases. Equipment leased for business purposes usually qualify as a business expense on a tax return. On the other hand, some might forget that purchasing a car gives a person equity to purchase a new car. However, you may not even need a leased item for the entire span of the agreement.
References
- Photo Credit "Education is what you get from reading the small print. Experience is what you get from not reading it." is Copyrighted by Flickr user: krossbow (F Delventhal) under the Creative Commons Attribution license.
