Financial and tax considerations in leasing versus purchasing decisions

Lease vs. Buy Differences

Buy or Lease -- Buying involves simply purchasing a particular item, generally by financing it if the item is expensive (Pine Grove, 2005). Leasing involves a contract process similar to renting, where the person that leases the item will decide at the end of the lease term whether to purchase the item that was leased (Pine Grove, 2005).

Advantages to Both Options -- The advantages to buying include total ownership of the item, no contract (other than financing), and no regulations on how or where the equipment purchased can be used. Advantages to leasing include just 'borrowing' the equipment for a while when it is needed, and often a lower price for leasing than buying would cost over the same time period.

Financial Considerations -- These considerations include the option price for the buy-back of the leased product, the interest rates that often differ between buying and leasing, the future resale value of the equipment or product that is purchased or leased, and the penalties that may be incurred if the leased item is used improperly (going over the allotted mileage allowance when leasing a car, for example).