Equipment Lease vs. Loan Payment Calculator
A lease payment covers the depreciation between the equipment price and its expected residual value, while a loan payment covers the full amount. Enter amount, rate, term, and residual to see the monthly payment.
Loan/Equipment Lease
Loans & Real Estate
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How the Loan/Equipment Lease Works
For a loan, the monthly payment amortizes the full amount plus interest over the term. For a lease, the financing only covers the difference between the equipment price and the residual value you expect at the end, which is why lease payments are lower. This calculator discounts the residual back to today and amortizes the remaining principal using the standard formula. A higher residual lowers the payment but may raise the buyout cost at the end. Compare total cost, not just the monthly figure: a lease usually costs more overall because you are effectively renting the asset, but it preserves cash and can offer tax advantages if the equipment is replaced often. A loan builds equity and is cheaper over a long holding period. Match the choice to how long you will keep the equipment and how quickly it becomes obsolete. Decide up front whether you will keep the equipment, because that answer determines whether the lower lease payment or the ownership of a loan is worth more.
Formula Used
Lease Principal = Amount - PV(Residual); PMT = Principal x r / (1 - (1+r)^-n)
Equipment price $20,000, rate 7%, 36-month term, residual value $5,000. Discounted residual is $4,055, leaving $15,945 to amortize; monthly payment = $492, total paid $22,724 including the residual.
When to Use This Calculator
- Choosing between leasing and buying equipment.
- Comparing the monthly cash flow impact of each option.
- Estimating the buyout cost at the end of a lease.
Common Mistakes
- Comparing payment only: A lower lease payment can cost more overall because you never own the asset without a buyout.
- Forgetting the buyout: If you plan to keep the equipment, add the residual to the lease cost before deciding.
- Ignoring tax treatment: Lease payments may be deductible while owned equipment is depreciated, which changes the true comparison.
Frequently Asked Questions
How is monthly loan amortization calculated across loan terms?
The standard formula spreads principal plus interest into equal payments using the monthly rate and number of months. Longer terms lower the payment but increase total interest. Shorter terms cost less interest but strain monthly cash flow.
What tax benefits exist for equipment leasing versus buying?
Lease payments are often treated as an operating expense and may be fully deductible, while purchased equipment is depreciated over time and may qualify for accelerated or bonus depreciation. The better option depends on your tax situation, so confirm with an accountant.
What is the difference between an equipment lease and a loan?
A loan finances the full purchase and builds ownership as you pay it down. A lease finances only the use of the asset for a set term and usually returns or buys it out at the end. Leases preserve cash; loans cost less over a long hold.
What is the difference between an equipment lease and a loan?
A loan finances the full purchase and builds ownership as you pay. A lease finances only the use of the asset for a set term and usually ends with a return or buyout. Leases preserve cash while loans cost less over a long hold.
What is the effective interest rate on a commercial equipment lease?
It is the rate that equates the lease payments and residual value to the equipment price. Lease quotes sometimes express this as a money factor, which you multiply by 2,400 to approximate the annual rate. Compare it with a loan APR.
How This Page Is Reviewed
Written by the Recapflow Editorial Team and last reviewed . Every formula and worked example is cross-checked against the live calculator engine and a hand-worked example. This page is educational and does not replace professional financial, tax, or legal advice.