Understanding Lease vs Buy Decisions
The lease vs buy decision is one of the most critical financial choices businesses face when acquiring equipment. Whether it's a $50,000 CNC machine, a fleet of delivery vehicles, or expensive medical imaging equipment, the choice between leasing and purchasing can impact your cash flow, tax liability, and overall financial health for years to come. This calculator provides a comprehensive analysis using Net Present Value (NPV), Section 179 tax deductions, MACRS depreciation schedules, and opportunity cost analysis to give you a clear recommendation based on your specific financial situation.
For 2025, many countries offer First-Year Allowances (immediate deductions) that allow businesses to expense equipment purchases up front—such as Section 179 in the US, Annual Investment Allowance in the UK, or Instant Asset Write-Off in Australia. This makes buying particularly attractive for businesses that can benefit from the tax shield. However, leasing preserves working capital and keeps your debt-to-equity ratio healthy, which may be crucial for businesses planning to raise funding or take on other debt.
How to Use This Tool
Enter Equipment Cost
Input the full purchase price of the equipment. This forms the basis for all calculations including Section 179 deductions and depreciation.
Configure Lease Terms
Enter the monthly lease payment, lease duration, and any residual/buyout value at the end of the lease period.
Set Purchase Financing
If financing the purchase, enter the interest rate, loan term, and down payment percentage. Set 100% down payment for cash purchases.
Input Tax Information
Enter your marginal tax bracket (15-37% for most businesses) and depreciation period (5 or 7 years for equipment).
Review the Recommendation
The calculator compares net costs after tax benefits and provides a clear BUY or LEASE recommendation with savings amounts.
Understanding Your Inputs
Equipment Cost
The total purchase price including delivery, installation, and any customization. This is your basis for depreciation.
First-Year Allowance
Many countries allow immediate deduction of equipment costs (e.g., Section 179 in US, AIA in UK). Enter your country's limit or the equipment cost if fully deductible.
Residual Value
The amount you'd pay to purchase the equipment at the end of a lease. Common residuals are $1 buyout, 10% FMV, or market value.
Opportunity Cost Rate
If you don't spend cash on a purchase, what return could you earn? Marketing ROI, inventory, or market investments typically yield 10-30%.
Key Metrics Explained
Net Cost (After Tax)
Total out-of-pocket cost minus all tax deductions. This is the true cost to compare lease vs buy.
Tax Savings
Money saved through Section 179, depreciation (buy), or expense deductions (lease). Higher tax brackets see greater savings.
Break-Even Month
The month when cumulative buying costs become lower than cumulative leasing costs. Earlier is better for buy decisions.
Opportunity Cost Impact
Factors in what you could earn with the capital if you chose to lease instead of paying a large down payment.
Pro TipConsider Your Growth Stage
Early-stage companies often benefit from leasing because it preserves cash for growth initiatives and keeps credit lines open. Established, profitable businesses benefit more from buying due to Section 179 deductions. If you're unsure about equipment needs for more than 2 years, leasing provides flexibility to upgrade without being stuck with depreciating assets.
Key Factors That Influence Your Decision
The optimal choice depends on multiple interconnected factors. Equipment lifecycle is critical: technology that evolves every 2-3 years may become obsolete before a purchase pays off, making leasing more attractive. Conversely, durable industrial machinery with 15+ year lifespans typically favors buying.
Your capital structure matters enormously. Businesses planning to raise equity should consider how down payments affect their runway. Debt-to-equity ratios impact creditworthiness for future financing. Some operating leases stay off-balance-sheet under certain accounting standards, though regulations are evolving.
Industry matters too. Medical practices often lease imaging equipment due to rapid technology advancement. Construction companies typically buy heavy machinery that holds value. Technology startups lease to preserve cash for growth, while established manufacturers buy to maximize depreciation benefits.
Finally, consider flexibility requirements. If your business model may pivot, or equipment needs are uncertain beyond 24 months, the option value of leasing—the ability to walk away or upgrade—has real economic worth that pure NPV calculations may underestimate. This calculator helps quantify the core financial trade-offs, but strategic considerations should also inform your final decision.