Equipment Buy vs. Lease

Should you lease or buy? Use this calculator to find out! We calculate monthly payments and your total net cost. By comparing these amounts, you can determine which is the better value for you.

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Definitions

Purchase price

Total purchase price.

Down payment

Amount paid as a down payment, which for leases is often called a capital reduction.

Sales tax rate

Sales tax percentage to be charged on this purchase. Sales tax is included in each lease payment. Sales tax for a purchase is charged on the total sale amount.

Investment rate of return

Rate of return on investments. This is the return that you would make if you were to invest your down payment or security deposit instead of using it in your purchase or lease.

The actual rate of return is largely dependent on the type of investments you select. From January 1970 to December 2009, the average compounded rate of return for the S&P 500, including reinvestment of dividends, was approximately 10.1% per year. During this period, the highest 12-month return was 64%, and the lowest was -43% (Standard and Poor's, Dec. 2008). Savings accounts at a bank may pay as little as 1% or less (Federal Reserve Statistical Release, Dec. 2009). It is important to remember that future rates of return can't be predicted with certainty and that investments that pay higher rates of return are subject to higher risk and volatility. The actual rate of return on investments can vary widely over time, especially for long-term investments. This includes the potential loss of principal on your investment.

Term in months

Term in months for your lease or your loan.

Other fees

Any fee, other than a capital reduction or down payment, required to be paid at the close of the lease or loan.

Annual rate of depreciation

The rate of depreciation gauges how fast your new purchase will lose its market value. A high depreciation rate is about 20% per year, medium is 15% per year and low is 10% per year.

Interest rate

Annual interest rate for your loan or your lease.

Residual percent

For leases, this is the remaining value after the lease term expires. The higher this amount is, the lower your lease payment will be.

Security deposit

Required deposit on leases. The security deposit is refunded to you at the end of your lease (depending on excessive wear or damage).

Lost interest on buy option

This includes any interest you would have earned at your investment rate of return on the buy option's down payment and other fees. If the monthly payment for leasing is less than the monthly payment for buying, this also includes any lost interest due to the higher monthly payments for buying. If leasing is more expensive than buying, your interest costs for buying are reduced by the amount of interest you would earn on the difference.

Lost interest on lease option

This includes any interest you would have earned at your investment rate of return on the lease option's down payment, security deposit and other fees. Please see the definition for "Lost interest on buy option" for an explanation on how we account for any interest you might earn by having a lower monthly lease payment.