Lease vs. Buy Calculator
Leasing trades a one-time investment for a recurring payment. The right answer depends on the discount rate, residual value, tax effect, and how long you actually expect to use the asset.
Comparing on present value
The right comparison is the net present cost of the two cash-flow streams over an identical period. Buying involves a large upfront payment, periodic maintenance, and a residual value at the end. Leasing involves periodic payments and (usually) no residual.
The lower number wins on cost. But cost is rarely the only consideration.
What the math doesn't capture
- Tax treatment. Lease payments are typically deductible operating expenses; purchases are depreciated under MACRS or capitalized under accounting rules (ROU assets under ASC 842). Net effect varies by jurisdiction and entity type.
- Flexibility. Leases let you upgrade or exit at the end of the term. Owned assets must be resold, which has friction.
- Obsolescence. For technology that depreciates faster than your finance models assume (servers, vehicles for high-mileage use), leasing transfers obsolescence risk to the lessor.
- Covenants. Operating leases sit on the balance sheet differently from owned assets and affect debt covenant calculations.
Worked example
A printing company is choosing between buying a $180,000 press (residual value $40,000 after five years, $4,000/year maintenance) and leasing for $3,400/month. At an 8% discount rate over five years: PV of buying ≈ $180,000 + $15,968 (PV of maintenance) − $27,224 (PV of residual) = $168,744. PV of leasing ≈ $169,158. Roughly a wash on net present cost; the decision should turn on tax position and balance-sheet preference.
When leasing usually wins
Leasing tends to win for short holding periods, capital-constrained businesses, fast-depreciating assets, and businesses that benefit from the operating-expense treatment. Buying tends to win for long holding periods, low-depreciation assets, businesses with surplus cash, and situations where customization or modification of the asset is needed (typically prohibited under leases).