Heavy Equipment Leasing: Types Of Leases And Things You Should Consider

18 February 2015
 Categories: , Articles

Share

As you begin looking at the jobs your company has coming up this year, are you having concerns over how well your equipment will hold up with these projects? If so, you may want to consider getting new equipment, but you might have worries over this too. Purchasing new heavy equipment can be expensive and risky; however, there is another option. You could lease the equipment instead. Companies that offer heavy equipment leasing generally offer several different types of leases and various options you can choose from.

Types Of Leases

Leasing equipment allows you to rent the equipment you need for a certain period of time. You may have options when it comes to the length of the lease, and you will have the ability to choose the type of lease you prefer. While there are numerous types available for heavy equipment, here are two of the most popular types:

Fair Market Value Lease

With this type of lease, you will get to use the machinery for a period of time, and you will make payments each month. At the end of the lease, you will get to choose whether you want to return the equipment, extend the lease, or purchase it.

The benefit of a fair market lease is that it allows you to purchase the equipment for fair market value at the end of the lease. This tends to be most beneficial with equipment that depreciates quickly. If the equipment depreciates fast, you can pay a really low price to buy it at the end of the lease. Depreciation of equipment does not necessarily have any correlation with the useful life of the equipment, so you may buy it for a low price even if the equipment has a lot of life left in it.

Another benefit of a fair market value lease is that you can write off 100% of your lease payments as expenses on your taxes. You cannot claim the depreciation expense though.

Dollar Buyout Lease

Another common option you have is a dollar buyout lease. This option allows you to purchase the leased equipment at the end of the lease for only $1. This option is highly beneficial if you plan on keeping the equipment for a long period of time, but it may not be a good idea if you are looking for low monthly payments.

With a dollar buyout lease, your payments will most likely be higher than they would be with a fair market value lease. This is because your lender will calculate the payments based on the equipment having no value at the end of the lease. With a fair market value lease, the lender will calculate the payments based on the equipment being worth a certain amount at the end of the lease.

The benefit of this is that if you keep the equipment for a long period of time, you will get the payments out of the way. At the end of the lease, you can pay $1 for the equipment and will never have to pay another dime for it. It will be yours completely, and it might last for another 10 years.

Considerations

As you think about leasing new heavy equipment, it's important to think about the following things before you choose the type of lease that is best for you:

  • Length of time – How long will you use the equipment? If you plan on using it for a short amount of time, stick with a fair market value lease. If you want to keep it for a long time, choose a dollar buyout lease.
  • Tax consequences – Talking your options over with an accountant may help you determine which lease option will be most beneficial for tax purposes for your situation.

Always compare your options before choosing one because this will help you get the best deal for your business. To learn more about this, contact a lender that offers heavy equipment leasing.