Leasing can be a Practical Option
Leasing equipment entails more than a simple agreement between two parties to use the aforementioned equipment for a set length of time. You will also be required to pay a set amount as a lease payment. There has been a lot of discussion about whether you should buy or lease equipment, but it’s important to remember that it’s the usage of the equipment that generates profits, not the ownership. You also have the option of selecting the equipment and provider of your choice.
Leasing – does it cost more than buying?
This isn’t a question that can be answered with a simple “yes or no.” To determine how much a loan would cost you, a leasing business looks at current mortgage rates and then calculates your interest deduction and depreciation (your net cost after tax). Competitive pricing is established while taking into account the larger lease deductions, resulting in comparable net costs. Everything hinges on time and interest rates.
Borrowing from a traditional bank
When you lease something, it’s not the same as when you borrow money from a bank or other financial organization. When you choose the latter, you are reducing your line of credit with the source and, as a result, you will no longer be able to draw from those sources in the near future. A bank will also require a 20 percent to 25 percent down payment, as well as additional collateral to secure the funds. When you lease equipment, you don’t have to pay anything up front because the financing is 100 percent.
Costs associated with a lease
A sales/use tax is usually paid on monthly leasing payments, depending on the state you live in. This amount is included in the monthly lease payment invoice, as well as a personal property tax assessed by the county on the equipment. A one-time credit and documentation processing fee is payable at the start of the lease.
Cancellation and end of lease conditions
A lease cannot be terminated until the entire period has passed. However, you can choose to add extra equipment during the term by crafting a new lease according to your needs. The previous lease is paid off, and the new lease is structured for the total payback, which includes the cost of brand new equipment. You have the option of returning the equipment at the conclusion of the lease or renewing your contract to keep paying the same monthly cost.
Leasing isn’t difficult; all you need to know is how it works in various settings and with changing interest rates. Brush up on your negotiating skills as well, so you can come up with a fair monthly rate for the equipment.