10 Reasons Why You Shouldn’t Lease Equipment
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Dec 15, 2025
Filed under: Equipment Financing
Should You Lease Or Buy Computers & IT Equipment?
When it's time to upgrade or add computers and IT equipment, is it better to buy or lease? Find out in this guide to buying versus leasing.
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Key Takeaways
- Leasing tech equipment offers easy upgrades and smoother cash flow but is more expensive and has legal complexities.
- Buying tech equipment is cheaper in the long term and gives you full ownership, but it requires upfront cash and risks quick obsolescence.
- Consider leasing if you need the latest technology frequently; buy if your tech needs are stable and long-term.
Tech equipment — computers, IT equipment, and related items — poses some unique issues for businesses trying to decide whether to lease or buy. Tech equipment becomes obsolete quickly, and businesses need to keep their hardware up-to-date to remain competitive.
The big question is, should you buy or lease tech equipment? In this guide, we’ll break down the pros and cons of each to help you make a smart financial decision for your business.
Table of Contents
How Does IT Equipment & Computer Leasing Work?
The word “lease” is often associated with rental agreements. However, the term has grown to encompass a number of other types of agreements.
Common Lease Terms
Before diving into the specifics of equipment leases, here are some common terms you may encounter:
- Lessor: The company financing your lease
- Lessee: The person or company taking out the lease
- Term Length: The length of your lease (typically one to five years)
- Interest: The amount you’ll be charged in excess of the value of the equipment. Rates vary depending on your credit and the current market, but well-qualified borrowers can generally expect to start in the mid-to-high single digits.
- Fees: These include supplemental charges like administration, restock, insurance, and origination fees
- Monthly Payment: The amount of money you’re expected to pay your lessor every month
- Residual: An amount required to purchase the leased equipment at the end of the lease
Capital VS Operating Leases
There are two primary forms of leases: capital leases and operating leases.
A capital lease (also called a finance lease) works more like buying than renting. By the time your lease is up, the equipment is essentially yours. Think of it like a car loan: you’re making payments over time with the expectation that you’ll own it at the end.
There are several types of capital leases, including $1 buyout leases and conditional sales agreements.
Compared to operating leases, you’ll have higher monthly payments but a much smaller residual payment at the end of your lease. You rarely, if ever, have the opportunity to return the equipment at the end of your lease.
With an operating lease, the leasing company retains ownership of the equipment while you’re given operating rights to it. This means the equipment is considered an operating expense for your business, rather than a purchasing expense.
Typically, monthly payments will be lower with operating leases, but the amount left over at the end will be larger. Operating leases usually give you the option of returning the equipment to the leasing company at the end of your lease. You also have the option to buy it for its fair market value price.
Buyout Agreements
If a lease has a buyout option, that means that you have the option to purchase the equipment at the end of your lease.
There are a lot of obscure types of lease agreements that you may run into, but generally speaking, you can expect capital leases to have small, insignificant residual payments and operating leases to have larger, more significant ones.
Leasing VS Buying Computers & IT Equipment
So why would you lease tech equipment instead of buying it? Let’s look at some of the advantages and disadvantages of leasing tech equipment.
Advantages Of Leasing
- Easy Upgrading: Tech equipment becomes obsolete very quickly, which can make it a poor longtime investment. An operating lease may allow you to stay up-to-date on the latest technology without having to re-purchase every couple of years. .
- Smooths Out Cash Flow: Breaking the cost of your equipment down into predictable monthly payments has its advantages, even if you are paying more over time.
- Shipping & Installation May Be Covered: Unlike business loans, leases more frequently cover the full expense of factory-to-operational expenses.
- No Down Payment: With the possible exception of having to make your first month’s payment up-front, the entry costs of a lease tend to be very low.
- Tax-Friendly: Lease payments are typically fully deductible as a business expense, which can lower your tax bill. Talk to your accountant to find out exactly how this applies to your situation.
Disadvantages Of Leasing
- More Expensive: Between interest and fees, it’s pretty much guaranteed that you’ll be spending more money on the equipment than you would if you had purchased it outright.
- You Can’t Easily Resell: If you want to offload your equipment before your lease is over, you may run into some legal complications. Make sure you know your lessor’s policies before you try to transfer ownership to a third party.
- Legal Complexity: There are many different types of leases, each with different rules around taxes, maintenance responsibilities, and how they show up in your financial records. It’s worth knowing that a change in accounting rules a few years ago now requires most leases to be listed on your balance sheet, meaning a lease no longer keeps debt ‘off the books’ the way it once did. An accountant can help you understand what this means for your business
- You Need Good Credit: Given the responsibilities that come with leasing, most lessors want to see a solid credit score
Advantages Of Buying
- Tax-Deductible: When you buy equipment, you can write it off on your taxes. Even better, a tax rule called Section 179 may allow you to deduct the full purchase price in the same year you buy it, rather than spreading the deduction out over several years, which can mean a bigger tax break right away.
- Bonus Depreciation: There’s also something called bonus depreciation, which works similarly and may allow you to deduct a large portion of the equipment’s cost upfront. Just keep in mind that the rules around both deductions change frequently, so check with a tax professional before making any decisions based on them.
- Cheaper: It’ll be a bigger expense up front, but over the long term, you’ll have saved a good bit of money.
- The Equipment Is Yours: You can keep, sell, modify, or loan out your equipment.
- Less Complicated: Buying is simple. You exchange currency for ownership of the item.
Disadvantages Of Buying
- You Need Cash On Hand: Buying means paying the price of the equipment all at once. That means you have to have a decent chunk of cash in your reserves — or be willing to take out a loan.
- You’ll Be Stuck With Obsolete Equipment: Tech equipment isn’t the best long-term investment. Eventually, you’ll be stuck with obsolete gear that isn’t easy to get rid of.
- It Depreciates Quickly: Ever tried selling your iPhone four years after you bought it? Tech moves quickly.
Computer Leasing VS Buying: Which Is Better For Your Business?
There are advantages and disadvantages to both buying and leasing computers and IT equipment.
Here’s a simple way to think about it: if you’re in an industry where staying current with the latest technology is important, leasing is probably the smarter move. If your tech needs are modest and you’re happy using the same equipment for five or more years, buying will likely save you money in the long run.
Don’t have the cash to buy outright but aren’t sure if a lease is right for you? Consider an equipment loan. Not sure where to look for equipment financing? Start with our picks for the best equipment financing companies.
Chris Motola
Expert Contributor at Merchant Maverick
Chris has been writing about small business topics since 2003. He has been featured in Fox Business, ABC News, Yahoo Finance, GoBankingRates, Newsweek, BizJournals, and other publications. He has a Bachelor’s of Arts in English Writing Arts from SUNY Oswego, and a Masters of Science in Interactive Media from the University of Central Florida.
View Chris Motola's professional experience on LinkedIn.
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