Compare ownership, cash and the end position
| Question | Equipment loan | Lease |
|---|---|---|
| Who owns it during use? | The business generally buys the asset; the lender may hold security. | Ownership generally remains with the lessor. |
| What is paid upfront? | Deposit or cash contribution, separately paid fees and costs outside the financed amount. | Any advance rental, initial fee, deposit or other amount required by the agreement. |
| What leaves the bank during use? | Loan instalments plus running costs and separately charged fees. | Lease payments plus costs not included in the agreement. |
| Who handles maintenance? | Usually the business; budget for servicing and downtime. | Check exactly what is included and who arranges repairs. |
| What happens when use ends? | Allow for any debt payout or balloon and realistic sale proceeds. | Check return, purchase, residual, damage and other contractual obligations. |
| What if plans change early? | Request the settlement terms and a dated payout quote. | Check remaining payments, early termination and return conditions. |
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Worked example: 36 months with the same machine
Assume a $60,000 machine is used for 36 months and then sold or returned. The loan uses a $10,000 deposit, $50,000 principal, 8% nominal annual interest, 36 equal monthly payments in arrears and no balloon. Separately, assume a lease quotation of $1,800 monthly, $1,000 upfront and a $500 return charge. These are hypothetical inputs, not available rates or offers.
| Cash item over 36 months | Buy with a loan, then sell | Lease, then return |
|---|---|---|
| Upfront cash | $10,000 | $1,000 |
| Monthly finance or lease payment | $1,566.82 | $1,800.00 |
| Additional monthly maintenance | $250.00 | Included in this assumed quote |
| Total regular monthly cash | $1,816.82 | $1,800.00 |
| All loan or lease payments | $56,405.46 | $64,800.00 |
| Additional maintenance over the period | $9,000.00 | $0.00 |
| End-of-use adjustment | Subtract $30,000 assumed sale proceeds | Add $500 assumed return charge |
| Net cash cost over the period | $45,405.46 | $66,300.00 |
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Both options end without the machine: one is sold and the other returned. The loan has been repaid in full. Costs common to both options are omitted; the example excludes tax effects, loan fees and unlisted charges. Calculations retain full precision, so displayed cents may not multiply exactly to totals.
The loan’s regular payment plus maintenance is about $16.82 more each month in this example, and it needs more upfront cash. Its lower net cash cost depends partly on the sale proceeds. If sale proceeds fall to $20,000, the loan option’s net cash cost rises to $55,405.46. Compare the cash timing and operational terms as well as the final total.
Let the operating need set the questions
| Your situation | Questions that matter |
|---|---|
| You need the machine for a shorter project | Can the commitment end when the work ends? What early return or payout costs apply? |
| You expect to keep it for many years | What upkeep, repair and replacement costs sit beyond the finance term? |
| You need modifications or a specialised setup | Are modifications permitted and must they be removed at return? |
| Workload is uncertain | How much cash is committed in quiet months and can the equipment be used on other work? |
| Fast repair or replacement is essential | Who arranges repairs, which providers may be used and what happens during downtime? |
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Think about how long you need the asset
A durable machine that fits a long-term operating need can raise different questions from equipment you expect to upgrade frequently. Compare the useful period with the commitment and the cost of ending it early.
A lease is not automatically flexible or maintenance-inclusive. Check the obligations, return condition and any residual or purchase terms.
Keep tax claims specific
Tax, GST and accounting treatment vary with the arrangement and your circumstances. Ask your accountant to review the actual documents. A broad claim that a product is tax-effective is not enough to establish that it is suitable.
Include all payments and the end position when comparing total cost. Also consider the responsibilities for insurance, servicing and breakdowns.
Use the calculator for the cash flows it supports
The buy, rent or finance calculator compares entered cash payments over a common period. A lease quote can inform the use-cost side only where its payments and end position fit those assumptions. Record residuals, return charges, irregular payments or purchase options separately when the model cannot represent them.
For the purchase side, test billable hours as well as the repayment. A workable monthly payment does not automatically provide the deposit, future repair costs or a final balloon.
Common questions
Do I automatically own leased equipment at the end?
No. The lease terms determine the options and obligations.
Is hire purchase the same as a lease?
It is a different structure. Ask how and when ownership transfers and compare the specific agreement.
General information only. Product terms and availability vary. Check the actual proposal and obtain advice appropriate to your circumstances.