Equipment lease-purchase checklist
A lease-purchase can be a fair deal or an expensive one, and the difference is in the fine print. Work through these checks before you sign, and enter the numbers to see what it really costs.
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What a lease-purchase is
You make payments for a set term, with a way to own the machine at the end. How you get there varies: a $1 buyout, a percentage, or a fair market value price decided later. Two lease-purchases with the same payment can cost very different amounts.
Where people get caught
- A buyout that was never put in writing as a number.
- Comparing only the payment, not the total paid.
- Limits on miles or hours, with a charge for going over.
- Maintenance and repairs on you, even though you do not own it yet.
- On a truck through a carrier, losing the truck and what you paid if you leave.
How to work out the real cost
Multiply the payment by the number of months, then add the down payment, fees and the buyout. Take away what the machine would cost in cash. That difference is what the lease costs you. Enter the numbers above and it is worked out for you.
What the form asks for
- The deal in front of you: Equipment; Leasing company; Monthly payment; Months; Buyout at the end; Down payment and fees; Price if you paid cash.
- What happens at the end: The buyout at the end is written as a dollar amount; It says who holds the title at the end, and when it transfers; If you can hand it back, it says what that costs.
- The real cost: You added up every payment, the down payment and the buyout; Doc fees, first and last payments and deposits are listed; It says whether a deposit comes back or goes toward the buyout; Sales tax on the payments or the price is clear; Early payoff is written out: can you, and how much is it?.
- The rules while you have it: Any limit on miles or hours, and the charge for going over; Who pays for repairs, tires and maintenance; Insurance you must carry, and what it costs; What counts as a default, and how long you get to fix it; Whether you sign a personal guarantee; Whether a default here triggers default on your other deals with this company; Whether a truck lease-purchase runs through a carrier, and what happens if you leave.
- Before you sign: You asked your accountant how it is treated: lease or purchase; You compared it to a straight loan on the same machine.
A general guide. Each lender and each deal is different.
Common questions
What is the difference between a $1 buyout and fair market value?
With a $1 buyout you pay it off through the payments and own it for a dollar at the end. With a fair market value lease your payments are often lower, but you pay what it is judged to be worth at the end, or hand it back.
Is a lease-purchase a lease or a loan for tax purposes?
It depends on how it is written, not what it is called. Many $1 buyouts are treated as purchases, and true leases are treated as an expense. Ask your accountant before you sign.
Should I get a lease-purchase or a loan?
Compare the total paid on each for the same machine. A lease may mean less money down or a lower payment, while a loan usually builds ownership sooner. Our payment calculator gives you the loan side of the comparison.
Can I pay off a lease early?
Sometimes, but early payoff can mean paying most of the remaining payments anyway. Get the early payoff written in the contract as a formula or an amount.
What should I watch for in a trucking lease-purchase through a carrier?
Who holds the title, where your payments go, whether you can haul for anyone else, and what happens to what you have paid if you leave or the carrier cuts your loads. Have someone independent read it before you sign.
Buying equipment and need financing? Apply here.
More documents
Equipment or vehicle bill of sale · Personal financial statement · Equipment condition report · Business debt schedule · Promissory note · Equipment rental agreement · Documents needed for financing · LLC operating agreement · All documents