Leases – Is this the best deal for you???




Now if you lease a piece of equipment, technically the equipment is not yours, it is own by the leasing company. You are paying rent to the leasing company for the use of that machine, but you don’t own it. So you don’t get any depreciation deduction because you don’t own the equipment.  However you do get the expense all your lease payments which are tax deductible.  Then at the end of the lease you usually get to buy the equipment for $1.  But you get no depreciation.

Salespeople will really entice you to leasing a piece of equipment because you get your deductions faster (over the life of the lease instead of over the life of the equipment [asset]). You just sign the lease and the equipment is yours (no need to hassling with your bank getting a loan.)   And you get to “buy” it for only $1.  Buying a digital dental unit worth $15,000 for only a dollar, what a deal!!!  Sign me up!!!

Slow down eager buyer!!!  What glitters is NOT necessarily gold.  Leasing is the most profitable part of most transactions for the LEASOR.  GM makes more money through GMAC (the financial arm of General Motors than it does making cars.  Strange but true. Most leases cost you more than if you go out and borrow the money from a bank.

Let’s look.

$15,000 piece of equipment.  We have two options.

Option #1 – Lease it for $484.01 for 3 years buy out $1.00

Option #2 – Get a loan for 2 years at 6% interest.  Cost is $664.81 / month.

Which is the better deal?  That is easy, the lease with the lower payment.

Not so!!!  The way to tell which option is best is to add up the total cost.

Option #1 – Lease $484.01 x 36 payments = $17,424.36 + $1.00 = $17,425.36

Option #2 – Loan $664.81 x 24 payments = $15,955.44

In this example, you could save $1,469.92 by getting a loan over leasing.

So even though the lease payments are less than the loan, you can’t tell which deal is best until you calculate the total cost of each option!!!  Leases almost ALWAYS cost you more money which is why the salespeople push them so hard.


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