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Comparisons

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 Comparing Purchase Options

 

 

Advantages

Disadvantages

Commentary

Fair Market Value

End of term option is open ended.
Lower monthly payments.
Maximized tax benefit.
Great for rapidly depreciating equipment.

Fair Market Value can be ambiguous and result in a disagreeably high valuation.

Fair Market Value allows you and your leasing company to negotiate what the value of the equipment is at the end of the lease. There are normally 3 options at the end of the term: buy the equipment for a mutually agreeable price, continue leasing it, or return it. You should ask your leasing company what they normally expect to receive at the of the lease term and if they can cap the amount.

10% Purchase Option / Put

End of lease payment is predetermined at either a fixed percentage of the equipment cost or a specified dollar amount.

You must pay the Fixed Put. It is considered an additional payment.

The Fixed Put is beneficial if you would like a lower monthly payment and are not concerned about making an additional payment at the end of lease.

$1 Buyout

End of lease payment is $1.00.

Higher monthly payments.
Minimized tax benefit.

You can own the equipment for $1.00 at the end of the lease.



 

Lease vs. Borrowing vs. Cash

 

 

eLease

Borrowing

Cash

Interest Rates

Fixed rate

Can fluctuate with the market

None

Speed of Approval

Within two business days after a bid has been selected for most amounts

Days to weeks

Instant

Down Payment

Typically, only 1 or 2 payments upfront which are applied to your balance

Typically, 10-20% of the total amount

100%

Financial Statements

Generally unnecessary for transactions under $150,000

Generally needed regardless of amount requested

None

Tax Benefits

Operating lease payments can be 100% tax deductible when shown as an operating expense.

Depreciation can be taken over the useful life of the equipment.

Depreciation can be taken over the useful life of the equipment.

Equipment Obsolescence

Used as a hedge against obsolescence. Why own when you can lease?

You own the equipment.

You own the equipment.

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Last modified: April 17, 2010