The decision to lease or buy is one of economics. With many variables involved in a lease or outright purchase, it is not easy to determine the best deal. When a company leases equipment, it typically uses a financing lease. Normally there is no down payment. The contractor then makes payments to a third party finance company. An alternative is the service or operating lease. Under this lease, the lessor (manufacturer or seller) remains the owner of the property and is responsible for the payments of any taxes or maintenance. This leasing option allows contractors to rent the equipment for a shorter, more flexible period of time.
When considering whether to buy or lease, there are several factors to keep in mind. Many operating leases require the equipment owner to perform all maintenance, a cash savings benefit to the contractor. When you buy, you assume the risk that the equipment will be worth what you estimated at the end of the note's return. When you lease, you pass this risk back to the lessor who often has a much larger market for the resale of equipment and can obtain higher residual values for it. Before you buy, calculate the total cost of owning the equipment and compute what its hourly cost would be. When the hourly rate exceeds the cost of renting on a short-term basis, you should not purchase equipment. Lease it instead.