Equipment Lease vs Buy Calculator

Compare the net present cost of leasing equipment against purchasing it, accounting for depreciation tax relief, residual value, and the cost of capital.

⚖️ Investment Analysis📐 Compare NPV of lease payments against NPV of purchase net of tax relief and residual💼 Business

Purchase price

Useful life (years)

Residual value at end of term

Annual lease payment

Lease term (years)

Discount rate (%)

Tax rate (%)

Annual maintenance if owned

Please enter valid values.

Formula & Reference

Variable	Symbol	Formula	Units
Equipment Lease vs Buy Calculator	—	Compare NPV of lease payments against NPV of purchase net of tax relief and residual	currency

Step-by-Step Examples

Example 1

Buying Cheaper

Purchase 85,000, 5 year life, 15,000 residual, lease 19,500/year for 5 years, 8% discount, 21% tax, 2,200 maintenance.

Annual depreciation = (85,000 − 15,000) / 5 = 14,000
Annual tax shield = 14,000 × 21% = 2,940
Net maintenance after tax = 2,200 × 0.79 = 1,738
Lease PV = 5 payments of 15,405 after tax, discounted ≈ 61,510
Purchase PV ≈ 76,570 including residual credit

✓ Compare the two present values directly

Example 2

Leasing Cheaper

Same equipment but lease at 14,000/year and no residual value on purchase.

Without residual, the full 85,000 is sunk
Lease payments after tax are considerably lower
Leasing wins on present value

✓ Residual value drives the comparison

Example 3

Short Lease Term

Purchase 85,000 over 5 years versus a 3 year lease.

A shorter lease covers fewer years of use
The comparison is not like for like unless the term matches the useful life
Extend the term or account for the replacement cost after year 3

✓ Match the term to useful life for a fair comparison

Real-World Applications

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Capital Preservation

Leasing avoids a large upfront outlay, preserving cash for working capital or growth investment.

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Obsolescence Transfer

For rapidly changing equipment, leasing shifts the risk of the asset becoming outdated to the lessor.

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Tax Treatment

Lease payments and depreciation receive different tax treatment, which materially affects the comparison.

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Beyond Cost

Balance sheet treatment, maintenance responsibility, and flexibility at end of term often matter as much as present value.

Common Mistakes to Avoid

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Comparing lease payments to purchase price directly

The comparison must be on present value, accounting for the time value of money, tax relief, and residual value — not raw totals.

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Ignoring residual value

Owned equipment retains value at the end of the term. Omitting the residual systematically makes purchasing look worse than it is.

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Mismatching lease term and useful life

A three-year lease against five years of ownership is not a fair comparison unless the replacement cost after year three is included.

Frequently Asked Questions

Is it better to lease or buy equipment? ▾

It depends on the present value comparison, but also on cash availability, obsolescence risk, and how long you will actually use the asset.

How does tax affect the comparison? ▾

Lease payments are typically deductible as an operating expense, while purchases generate depreciation deductions over time. The timing difference affects present value.

What is residual value? ▾

The expected worth of the asset at the end of the comparison period. For owned equipment it is a recoverable credit that reduces the effective cost.

Does leasing keep debt off the balance sheet? ▾

Less so than it once did. Accounting standards have brought most leases onto the balance sheet, though treatment still varies by lease type and jurisdiction.

When does leasing clearly make sense? ▾

When capital is constrained, when the equipment becomes obsolete quickly, or when you need flexibility to upgrade or exit before the asset's full life.