What are the disadvantages of leasing
Advantages of Leasing: Leasing offers fixed rate financing; you pay at the same rate each month. Leasing is inflation friendly. As the costs go up over five years, you still pay the same rate as when you began the lease, therefore making your dollar stretch farther. There is less upfront cash outlay; you do not need to make large cash payments for the purchase of needed equipment. Leasing better utilizes equipment; you lease and pay for equipment only for the time you need it (until the end of the lease). There is typically an option to buy equipment at end of the term of the lease. You can keep upgrading; as new equipment becomes available you can upgrade to the latest models each time your lease ends. It is easier to obtain lease financing than loans from commercial lenders (in most cases). It offers potential tax benefits
depending on how the lease is structured.
Disadvantages of Leasing: Disadvantages of Leasing:
- Leasing is a preferred means of financing for many businesses. However, it is not for every business. The type of industry and type of equipment required also need to be considered. Tax implications also need to be compared between leasing and purchasing equipment outright.
You have no equity until you decide to purchase the equipment at the end of the lease term, at which point the equipment may have depreciated significantly. Although you are not the owner, you are still responsible for maintaining the equipment as specified by the terms of the lease.
- You have an obligation to continue making payments. Typically, leases may not be terminated before the original term is completed. The renter is responsible for paying off the lease. This can create a major financial problem for the owner of a business experiencing a downturn.
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