Should You Lease Or Buy Computers & IT Equipment?

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.

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 typically start at around 6%)
• 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 transfers ownership of the item to you, the lessee, either immediately or early during the lease’s terms. 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. An operating lease is an alternative to an equipment loan.

Operating leases are more traditional leases. 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

Disadvantages Of Leasing

Advantages Of Buying

Disadvantages Of Buying

Computer Leasing VS Buying: Which Is Better For Your Business?

There are advantages and disadvantages to both buying and leasing computers and IT equipment. Consider leasing equipment with a high turnover rate if you work in an industry where being on the bleeding edge is advantageous.

On the other hand, if you have modest tech needs and can comfortably use the same gear for longer than five years, it may make more sense to just simply buy the equipment you need.

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.