Lease vs Buy Calculator
Compare the net financial cost of leasing versus buying equipment or vehicles for your business by accounting for payments, residual value, down payment, and tax benefits. Use it before signing any major asset agreement.
About this calculator
This calculator measures the cost advantage of leasing over buying using the formula: Result = ((monthlyLeasePayment × leaseTerm) − (residualValue × 0.7)) − ((purchasePrice − downPayment) × (1 − (taxBenefit / 100) × (leaseTerm / 12))). The first bracketed term is the net lease cost: total lease payments minus 70% of the residual value (reflecting typical resale recovery). The second term is the net purchase cost: the financed amount adjusted downward by the tax benefit accrued over the lease term. A positive result means leasing costs more; a negative result means buying costs more. Tax benefits from depreciation deductions under Section 179 or bonus depreciation can significantly tilt the analysis toward purchasing.
How to use
Assume a $50,000 piece of equipment: lease at $1,000/month for 36 months, $10,000 residual, no down payment, and a 20% annual tax benefit. Net lease cost = ($1,000 × 36) − ($10,000 × 0.7) = $36,000 − $7,000 = $29,000. Net purchase cost = ($50,000 − $0) × (1 − (20/100) × (36/12)) = $50,000 × (1 − 0.6) = $20,000. Result = $29,000 − $20,000 = $9,000. A positive $9,000 means buying is $9,000 cheaper in this scenario.
Frequently asked questions
When does leasing business equipment make more financial sense than buying?
Leasing tends to be more advantageous when equipment becomes technologically obsolete quickly, such as computers or medical devices, because you can upgrade at the end of each term without absorbing residual-value risk. It also preserves working capital and credit lines since it typically requires no large down payment. Businesses with fluctuating cash flow may prefer the predictable, lower monthly outlay of a lease. However, over longer time horizons, buying usually wins on total cost — especially when strong tax depreciation benefits apply.
How does a tax benefit percentage reduce the effective cost of buying equipment?
When you purchase business equipment, the IRS allows you to deduct depreciation over the asset's useful life, or in many cases, to immediately expense a large portion under Section 179 or bonus depreciation rules. This reduces your taxable income, creating a real cash saving equivalent to the deduction multiplied by your marginal tax rate. The annual tax benefit percentage in this calculator represents that effective rate of cost reduction per year. A 20% annual tax benefit over a 3-year term reduces the effective purchase cost by 60% of the financed amount, making ownership far more attractive for profitable businesses.
What does residual value mean in a lease vs. buy comparison?
Residual value is the estimated market value of the asset at the end of the lease term. In a lease, the leasing company retains ownership and captures that residual value — you do not. In a purchase, you own the asset and can sell it, trade it, or continue using it at no additional cost. The calculator applies a 70% recovery factor to the residual value, reflecting realistic resale conditions after broker fees, wear-and-tear adjustments, and market depreciation. A high residual value strongly favors buying, because you capture that remaining asset worth rather than walking away empty-handed at lease end.