Is leasing or buying equipment cheaper?

Buying with a loan is usually cheaper if you keep the equipment for its useful life. Leasing wins on monthly payment but typically costs more in total. Cash beats both on total cost only when the opportunity cost of capital is below the loan rate.

What is the tax difference?

Lease payments are typically fully deductible as an operating expense. Loan-purchased equipment is depreciated over the asset's useful life (or accelerated under Section 179 / bonus depreciation up to limits). Section 179 can let you deduct $1.16M+ of equipment in year one as of 2026; this often makes a loan more tax-favorable than a lease.

When does paying cash make sense?

When you have surplus cash that does not have a higher-return use, the equipment is small relative to working-capital needs, and the equipment loan rate is high. For most established businesses, financing equipment and keeping cash for working capital is the better move.

What is a $1 buyout lease?

An equipment lease that ends with a $1 purchase option to take ownership. Functionally a loan with a different tax treatment — it captures Section 179 like a loan would. Compare carefully to a true lease to see which structure is cheaper after tax.

Is a TRAC lease the same as a regular lease?

No. A TRAC lease is a vehicle lease with a Terminal Rental Adjustment Clause — the lessee guarantees a residual value at end of lease. Common on Class-8 trucks. Compare to standard FMV (fair market value) leases and to loans.

Equipment Lease vs Loan vs Cash | 3-Way Comparison

Quick answer

Three-way: equipment lease, equipment loan, or cash. Loan wins on total cost when you keep the equipment for its useful life and can use Section 179 / bonus depreciation. Lease wins on monthly payment and on equipment that obsoletes fast (tech, certain medical). Cash wins only when the opportunity cost of capital is below the loan rate — rare for an established business with productive uses for working capital. The tax treatment differs across all three; talk to your CPA before signing.

Compare equipment financing offers →

The lease-vs-loan-vs-cash decision is one of the most consequential capital choices a small business makes, and it is decided badly more often than not. Most analyses focus on monthly payment instead of total cost; most ignore tax effects; almost none factor opportunity cost of cash. This guide compares all three on the dimensions that actually drive the right answer. For broader context see equipment financing.

Three-Way Comparison

Dimension	Lease	Loan	Cash
Ownership	No (lessor)	Yes	Yes
Monthly cost	Lowest	Mid	Zero
Total cost	Highest (if held)	Mid	Lowest (ignoring opp cost)
Tax treatment	Payments deductible (true lease)	Section 179 + depreciation	Section 179 + depreciation
Down payment	Often $0	0-20%	100%
End of term	Return, buy, or extend	You own outright	You own outright
Best for	Tech, fast-depreciating	Long-life assets	Surplus cash with no better use

Real Numbers: $100K Equipment, 5-Year Useful Life

Equipment cost: $100,000. Assume 25% effective tax rate.

Option 1: Lease

FMV operating lease, 5-year term, $1,950/mo
Total payments: $117,000
Tax savings: $117,000 × 25% = $29,250
End of term: return equipment OR buy at FMV
After-tax cost (excluding any end-of-term buyout): $87,750

Option 2: Loan

$100K loan, 12% APR, 5-year, monthly P&I = $2,224
Total payments: $133,440 (interest portion: $33,440)
Tax savings: Section 179 deduction of $100K in year 1 = $25,000 immediate refund + interest deduction over 5 years ($33,440 × 25% = $8,360)
End of term: own outright with $0 buyout
After-tax cost: $133,440 - $25,000 - $8,360 = $100,080

Option 3: Cash

$100,000 cash out today
Tax savings: Section 179 deduction $100K = $25,000 immediate refund
Opportunity cost: if that cash earned 8% in working capital deployment, that is $40K of forgone returns over 5 years
After-tax cost (excluding opp cost): $75,000
After-tax cost (including 8% opp cost): $75,000 + $40,000 = $115,000

The headline: lease and cash without opportunity cost look cheap; cash with realistic opportunity cost is actually the most expensive of the three; loan is mid-range and gives you ownership. The right answer depends almost entirely on what else you would do with the cash.

When Each Option Fits

Lease wins when

Equipment obsoletes fast (technology, certain medical, copiers)
You want to upgrade every 3-4 years rather than hold for the asset's full life
You cannot use Section 179 (low taxable income, AMT issues)
Operating-lease accounting (off-balance-sheet) matters for your reporting

Loan wins when

You will keep the equipment for its full useful life
Section 179 / bonus depreciation creates immediate tax savings
The interest rate is below your blended cost of capital
You want ownership at the end

Cash wins when

The cash has no productive deployment elsewhere
The asset is small relative to total operations
The available equipment loan rates are unusually high
Avoiding any debt is a structural priority for the business

Tax Considerations: Section 179 and Bonus Depreciation

Section 179 lets a business expense the full cost of qualifying equipment in the year of purchase, up to a $1.16M limit (2026). Bonus depreciation (currently 60% in 2026, phasing down) lets you deduct a percentage of remaining cost in year 1 and depreciate the rest over the asset's useful life. Both apply to financed-with-loan equipment exactly as they apply to cash-purchased equipment — the loan does not change the deductibility.

For true operating leases, the lessor takes the depreciation; you deduct the lease payments as operating expense. For $1 buyout leases (capital leases), the IRS treats them as financed purchases — you take Section 179 like a loan would.

Talk to your CPA. Tax law changes frequently and the optimal structure depends on your specific tax situation.

Next Step

Have a piece of equipment in mind and want to compare structures? Compare equipment financing offers — lease and loan offers from multiple lenders in one application.