The Short Answer

Is It Better to Buy or Lease Equipment?

Textbook Definition

Total cost of ownership is everything a piece of equipment costs over the years you use it, including payments, down payment, fees, repairs, and overage charges, minus what it is worth or what you still owe at the end.

In Plain English

For equipment you will use hard for years, owning, often used, usually costs the least. A lease can win for short jobs, fast-changing technology, or light use. Judge by the four-year total, not the monthly payment.

Total Cost of Ownership

Up front + payments + extra costs + still owed − value at the end

Used truck, four years: about $43,300

Residual value is what the equipment should be worth when the lease or loan ends. Every comparison below turns on it. The same logic sits under how to calculate ROI on any purchase.

Show the Math

Three Offers, Four Years: One Dump Truck

Ridgeline’s third crew needed a dump truck. The dealer’s lease was $300 a month less than a loan. Here is what each offer really cost over the four years the crew will use it.

MeasureNew, loanNew, leaseUsed, loan
Price$80,000$80,000$52,000
Due up front$0$5,000$12,000
Monthly payment$1,641 (60 mo, 8.5%)$1,340 (48 mo)$986 (48 mo, 8.5%)
Paid over four years$78,800$69,300$59,300
Extra costs$0$4,200 mileage$6,000 repairs
Still owed at the end$18,800$0$0
Worth at the endabout $40,000$0about $22,000
Four-year total costabout $57,600about $73,500about $43,300

Fictional figures from the book. Paid over four years includes the amount due up front.

How Each Total Works New, loan: $1,641 × 48 = $78,800 paid, + $18,800 still owed − $40,000 truck value = $57,600 Lease: $5,000 + ($1,340 × 48 = $64,300) = $69,300, + 12,000 extra miles × $0.35 = $4,200 → $73,500 Used, loan: $12,000 + ($986 × 48 = $47,300) = $59,300, + $6,000 repairs − $22,000 value = $43,300 The lowest payment, the lease, is the most expensive choice: about $16,000 more than the new-truck loan and $30,000 more than the used truck.

The Method

How to Compare Equipment Offers in 5 Steps

  1. Get three written quotes.

    New with a loan, a lease, and used. Same equipment class, same number of years.

  2. Total every line for the years you will use it.

    Up front, payments, extra costs like mileage or hours, what you still owe, and what it is worth at the end.

  3. Read the fine print on usage.

    Ridgeline’s lease allowed 15,000 miles a year. The crew drives 18,000. That one line added $4,200.

  4. Run the winter test and the floor test.

    Can you make the payment in your slowest months? Does the down payment keep your cash above your floor? The used truck’s $986 was the easiest to carry.

  5. Ask your CPA about taxes before you sign.

    Buying, financing, and leasing can each be taxed differently, and most leases over a year now show up on the balance sheet too.

When a Lease Does Make Sense

Short-term needs, like a two-year contract that needs special equipment. Technology that changes fast. Use that stays well under the mileage or hour limits. Or a cash squeeze where the lower upfront cost keeps you above your floor, as long as you know what that convenience costs. For everything else, the total usually favors owning. Not sure your cash can carry the down payment? Check how much cash reserve to keep first.

Repair or Replace?

When Should You Replace Equipment Instead of Repairing It?

  • Compare a year of repairs to a year of payments on a replacement. When they get close, start shopping.
  • Count the downtime. A mower down for a week in May costs the jobs the crew could not do.
  • Sell while it is worth something. A truck at five years brings real money. At twelve, it brings scrap.

Financing the replacement? Compare lenders the same way you compared offers: how to compare business loans.

Owner Warning

Where Do Owners Lose Money on Equipment?

  • Picking the offer with the lowest monthly payment.
  • Never reading the mileage or hour limit on a lease.
  • Comparing a 60-month loan to a 48-month lease without lining up the years.
  • Forgetting what the equipment will be worth at the end.
  • Draining the reserve for a down payment.
  • Asking the tax question after signing instead of before.
Dale’s cheap van lease allowed 10,000 miles a year. His crew drove 25,000. The turn-in bill was $9,000 for a van he no longer owned. Chapter 17 shows how to avoid his mistake.Get the Book on Amazon →

From the Book

The Payment Is the Dealer’s Number

Chapter 17 · Buy, Lease, or Finance

Three Offers, Four Years

The lowest monthly payment, the lease, is the most expensive choice by about $16,000 over the new-truck loan and $30,000 over the used truck.

The full comparison, the winter test, the repair-or-replace rule, and what happened after Mike bought the used truck. It is all in the book.

Get the Book on Amazon →

Big Purchase Coming Up?

Equipment decisions hit cash, debt, and taxes at once. If you want someone to line up the quotes, run the cash test, and sit in on the lender call, Dr. Paul works with owners as a part-time financial lead on exactly these decisions. See fractional CFO services.

Beyond the Book

Put These Numbers to Work on Your Own Business

The book teaches you to read the numbers. These three take you from reading them to using them.

Business Plan Templates

Start with a proven plan. A Word business plan and an Excel financial model built for your industry.

See the Templates →

Business Plan Writing

Need a plan a lender will read? Dr. Paul writes it, financials included.

See Plan Writing →

Business Consulting

You can read the numbers. Now fix them, one-on-one with Dr. Paul.

See Consulting Options →

FAQ

Buy vs. Lease Questions

Is it cheaper to lease or buy equipment for a business?
For equipment you will use hard for years, buying is usually cheaper over its life, and buying used is often cheapest. In the book’s dump truck example, the lease had the lowest payment but cost about $30,000 more over four years than a used truck with a loan.
When does leasing equipment make sense?
When you need it for a short time, when the technology changes fast, when your use stays well under the lease’s mileage or hour limits, or when cash is tight and the lower upfront cost keeps you above your cash floor.
What is total cost of ownership?
Everything a piece of equipment costs over the years you use it, including the down payment, payments, fees, repairs, and overage charges, minus what it is worth or what you still owe at the end. It is the number to compare, not the monthly payment.
Do equipment leases go on the balance sheet?
Under current accounting rules, most leases longer than a year do show up on the balance sheet. How your lease is recorded and taxed is a question for your CPA, and it is best asked before you sign.

Keep Going

Related Guides

Every chapter’s topic, mapped: the small business finance guide.

Guide 2 · How to Fund a Business

Match the loan to the asset you are buying.

Guide 9 · Can You Afford to Grow?

A new truck is often the first step of a bigger expansion.

Guide 6 · Working Capital

What a down payment does to your short-term cushion.
← Previous · Guide 7How Much Should I Pay Myself as a Small Business Owner?

Written by Dr. Paul Borosky, DBA, MBA, business consultant, author, and adjunct finance instructor with an MBA focused in finance.

This page is for general educational purposes only. It is not legal, financial, tax, accounting, or lending advice. Tax rules change by place and by year. Ridgeline Landscaping and its figures are a fictional illustration from the book, not a projection for your business. For decisions about your own business, consult a qualified professional.