Put a loan quote next to a lease quote and the lease looks cheaper, because the lease payment almost always is lower. That comparison has sent a lot of owners into the more expensive deal. Here's how to compare them honestly — the structures, the arithmetic, the tax angle, and the end-of-term clauses that quietly decide it.
What you're actually choosing between
An equipment loan (often written as an equipment finance agreement) means you own the asset from day one: the lender holds a lien, you depreciate it, and when the note is paid the machine is yours.
A lease means someone else owns it and you pay to use it for a set term. What happens at the end is the entire question — and that depends on which kind of lease you signed.
"Leasing" means four different products
A dealer or broker may hand you two of these on one sheet without labeling the difference.
$1 buyout (capital lease)
A purchase wearing lease paperwork. Highest payment of the four, and the asset is yours at the end for a dollar. Economically a loan, and generally treated like one for tax and accounting.
Fair market value (true / operating) lease
The lowest payment, because you're only paying for the portion of the asset's life you use. At the end you return, renew, or buy at market value — and on a well-maintained machine that's a serious number, not a formality.
10% PUT or fixed-percentage buyout
The middle: payment between the two above, with the end-of-term price fixed as a stated percentage of original cost. You know the buyout number the day you sign instead of negotiating it in five years.
TRAC lease (titled vehicles)
Built for trucks and trailers. The residual is agreed up front; at the end you buy at that figure or sell the unit and settle the difference. Fleets use these to manage trade cycles — it pairs with how truck financing is normally structured.
The arithmetic nobody runs
Take an $85,000 machine package on a 60-month term. Illustrative numbers, not a quote — plug your own in:
| Structure | Payment | Total of payments | To own it at the end |
|---|---|---|---|
| Loan / $1 buyout | $1,750 | $105,000 | $105,000 — you own it |
| 10% PUT lease | $1,595 | $95,700 | $95,700 + $8,500 = $104,200 |
| FMV lease | $1,430 | $85,800 | $85,800 + market value (~$38,000) = $123,800 |
Three things fall out of that table.
The $320/month gap is real cash — about $19,200 across the term. If it funds crews, inventory, or another revenue-producing machine, the lease can be the better business decision even at a higher cost to own.
If you keep the asset, owning wins clearly. Pay $105,000, hold something worth roughly $38,000, and your five-year cost of use is about $67,000 — against $85,800 to rent it and own nothing. An $18,800 swing on one machine.
The FMV lease stops looking expensive the moment you don't want the asset. If the machine will be obsolete, worn out, or wrong for your work in five years, paying $85,800 and handing back the keys is cheaper — and the resale risk was someone else's.
So the deciding question isn't cost — it's utilization
Ask how long the asset earns. Equipment that runs most weeks for a decade should be owned: you'll pay for it either way, so end up with the residual. Equipment tied to one contract, or a class that turns over fast, is a renting problem. The same contractor should own the skid steer and consider leasing the surveying technology.
Technology obsolescence — POS systems, diagnostic gear, anything with a software roadmap — is a leasing case, because the residual you'd buy is going to evaporate. Durable iron with a deep used market — excavators, reefer trailers, commercial hoods and refrigeration — is an ownership case, because the used market protects your residual. The mechanics for construction equipment and restaurant equipment both come back to that resale question.
The tax treatment can flip the answer
Purchases and capital-lease structures are generally treated as acquiring the asset, which can open Section 179 expensing and bonus depreciation — potentially a large deduction in the year the equipment is placed in service. A true operating lease is generally deducted as rent across the term instead: smaller, smoother, sometimes more useful.
Which helps more depends on facts only your CPA has: your taxable income this year, the current limits and phase-outs, whether bonus depreciation is stepping down, and your state's conformity rules. Those limits move, so a figure from last year may already be wrong. This is the one input that regularly reverses an otherwise obvious decision.
One accounting note if you have a bank line or bonding: under current lease accounting rules, most leases land on the balance sheet. The old "off-balance-sheet lease" advantage largely doesn't exist. Don't pick a lease expecting your statements to hide it.
The end-of-term clauses that cost real money
On an FMV lease, the fine print is where the cost lives:
- Automatic renewal (evergreen) clauses. Miss a written notice window — often 90 to 180 days before term end — and the lease renews for months or a year. The most common way a reasonable lease becomes an expensive one.
- Return condition standards. Hour or mileage caps, "excess wear" definitions, required service records, who pays return freight. Vague return language is a bill you can't size yet.
- How FMV is determined. Appraised by whom, and can you dispute it? A buyout priced by the party benefiting from a high number deserves a defined method.
- Interim rent. Charges between funding and the first scheduled payment — legitimate, but disclosed rather than discovered.
- Pass-throughs. Property tax, insurance administration and documentation fees billed on top of the payment, and whether they're financed.
Qualification isn't identical
A true lease can sometimes work on a thinner file, because the lessor retains ownership and can price in a residual, which gives underwriting more room. That's a structural difference, not a promise — no product guarantees approval, and anyone committing to one before seeing your file is telling you about themselves rather than your deal. Underwriters still weigh time in business, bank activity, the asset's resale profile and your trade experience; that's broken down in what lenders actually check.
A straight answer, by situation
| Your situation | Usually the better fit | Why |
|---|---|---|
| Asset runs most weeks for 7+ years | Loan or $1 buyout | You keep the residual you were paying for anyway |
| Bought for one contract | FMV lease | Match the term to the revenue, hand back the risk |
| Technology that dates quickly | FMV lease | The residual you'd buy won't be there |
| Cash is the binding constraint right now | Lease, lowest payment | Freed cash can out-earn the extra cost |
| Big taxable income year | Ask the CPA first | Section 179 can outweigh the payment difference |
| Want certainty on the buyout number | 10% PUT | End-of-term price is fixed at signing |
Before you sign either one
- Get the structure named in writing: loan, $1 buyout, fixed-percentage buyout, FMV, or TRAC.
- Compute total of payments plus buyout for every option — not the payment.
- Subtract a realistic resale value at term end. That's your true cost of use.
- Ask your CPA for this year's Section 179 and bonus depreciation figures.
- Put the renewal notice date in your calendar the day you sign.
Equipment is usually the easiest money a business can get, because the asset secures the deal. That's exactly why it's worth ten minutes of arithmetic — easy money and cheap money aren't the same thing.
Common questions
Is it cheaper to lease or finance?
Leasing almost always has the lower payment. Financing usually has the lower total cost if you keep the asset, because you end up owning something with resale value. Compare total of payments plus buyout, minus realistic resale value — not the monthly figure.
$1 buyout vs. FMV lease — what's the difference?
A $1 buyout is a purchase in lease clothing: higher payment, asset is yours at the end. An FMV lease has a lower payment because you're paying for part of the asset's life, and at the end you return, renew, or buy at market value — which can be substantial.
Can I write off leased equipment like a purchase?
The mechanics differ. Purchases and capital leases are generally treated as acquiring the asset, opening Section 179 and bonus depreciation. True operating leases are generally deducted as rent over the term. Which wins depends on your income and this year's limits — ask your CPA.
Is a lease easier to get approved?
Sometimes, because the lessor keeps ownership and can price in a residual. No structure guarantees approval. Time in business, bank activity, the asset's resale profile, and your trade experience all still matter.