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Lease vs Loan


What are the differences between a Lease and a Loan?

Loans Lease
A Loan requires the end user to invest a down payment in the equipment. The loan finances the remaining amountMonthly Payment
A lease requires no down payment and finances only the value of the equipment expected to be "used up" during the lease term. The lessee usually has an option to buy the equipment for its remaining value at the end of the lease term.
A loan usually requires the borrower to pledge other assests for collateral.
The leased equipment itself is usually all that is needed to secure a lease transaction
A loan usually requires two expenditures during the first payment period; a down payment at the beginning and a loan payment at the end.
A lease requires only a lease payment at the beginning of the first payment period which is usually much lower that the loan down payment.
The end user bears all the risk of equipment obsolescences because of new technology.
The risk of equipment devaluation is on the part of lessor as there is no obligation to own the equipment at the end of the lease.
End users may claim a tax deduction for a portion of the loan payment as interest and for depreciation, which is tied to structured depreciation schedules
When the leases are structured as "true" leases, the end user may often claim the entire lease payment as a tax deduction. The equipment writeoff is then tied to the lease term which can be shorter than the applicable depreciation schedules, resulting in larger tax deductions each year. The deduction is also the same every year, which simplifies budgeting/accounting
Financial accounting standards require owned equipment to appear as an asset with a corresponding liability on the balance sheet.
Leased assets are expensed when the lease is a true operating lease. Such assets do not appear on the balance sheet, which can improve financial ratios.
A larger portion of the borrowed amount is paid in todays dollars.
More of the cash flow, including the option to purchase the equipment, occurs later in the lease when inflation makes dollars cheaper.


For more information, please contact your Henry Schein Consultant

Phone 1-800-668-5558