vs. Loan vs. Sales Contract Advantages & Disadvantages
  Leases Loans
  • Requires no down payment
  • Finances the value expected to be depleted during the lease term
  • Down payments are usually required
  • The loan finances the remaining amount
  • Typically requires only a lease payment (which is usually lower than the down payment)
  • Typically requires a down payment and loan payment within the first payment period
  • Equipment is usually sufficient to secure a lease
  • Borrower pledges other assets for collateral
  • Claim entire lease payment as a tax deduction
  • Equipment write off is tied to a lease term, which is typically shorter than IRS depreciation schedules (results in larger tax deductions)
  • Deduction is taken during the same year (simplify budgeting)
  • Claim a tax deduction for a portion of the loan payment as interest and for depreciation
  • Depreciation expense tied to fixed IRS schedules often not tied to the realistic useful life of the asset
  • Leased assets are expensed when the lease is an operating lease
  • Assets do not appear on the balance sheet
  • Owned equipment appears as an asset with a corresponding liability on the balance sheet
  • The risk of obsolescence may have to be carried by the lessor
  • User takes all risk of equipment devaluation due to technological obsolescence