Equipment Loan vs Lease: What's the Difference?

When your business needs equipment — trucks, machinery, computers, medical devices — you typically have two main options: buy it with an equipment loan or lease it. Both have advantages and disadvantages, and the right choice depends on your business's situation, the type of equipment, and your financial goals.

Equipment Loan

An equipment loan is a loan used to purchase equipment. The equipment itself serves as collateral for the loan. You make payments over a set term, and at the end, you own the equipment outright.

• Ownership: You own the equipment from day one (the lender has a lien on it as collateral).
• Down payment: Typically 10–20% of the equipment cost.
• Term: Typically 3–7 years, often aligned with the equipment's useful life.
• Tax benefits: May qualify for Section 179 deduction or bonus depreciation (consult your tax professional).
• At the end: You own the equipment with no further obligation.

Equipment Lease

An equipment lease is an agreement to rent equipment for a set period. You make monthly lease payments and use the equipment, but you don't own it (unless you choose to buy it at the end, depending on the lease type).

• Ownership: The leasing company owns the equipment. You use it.
• Down payment: Leases typically require little or no down payment (first and last payment may be required).
• Term: Typically 2–5 years.
• Lease types: $1 buyout lease (essentially a loan — you own it at the end for $1), fair market value (FMV) lease (you can buy it at the end for its fair market value, return it, or renew).
• Tax benefits: Lease payments may be deductible as a business expense (consult your tax professional).
• At the end: You return the equipment, buy it (if the lease allows), or renew the lease.

Key Differences

• Ownership: Loan = you own it. Lease = the leasing company owns it (unless you buy it at the end).
• Down payment: Loans typically require a down payment. Leases typically don't.
• Monthly payment: Lease payments are typically lower than loan payments (because you're not paying down principal to own the asset).
• Total cost: Over the long term, buying (with a loan) is typically cheaper than leasing, because you're not paying a leasing company's profit margin.
• Flexibility: Leasing makes it easier to upgrade equipment at the end of the term. Buying means you can keep the equipment as long as you want.
• Tax treatment: Both may offer tax benefits, but the treatment differs. Consult a tax professional.

When to Choose a Loan

• You want to own the equipment long-term
• The equipment has a long useful life and retains value
• You want to build equity in the equipment
• You can afford the down payment and higher monthly payments

When to Choose a Lease

• You need to upgrade equipment frequently (technology, vehicles)
• You want lower monthly payments
• You don't have cash for a down payment
• The equipment may become obsolete quickly

Next Step

If you need equipment financing, submit your information for a review, or explore our equipment financing page.