January provides an opportunity for a fresh start. It’s a great time for machine owners to evaluate their business strategies, project schedules and existing equipment. Those ready to expand or update their fleets have some considerations to make before purchasing. Does it make more sense to lease or own the equipment? How do you know which financial solution best fits your situation? How can you be sure you've made the right choice? These are just a few of the questions to ask when making a purchase decision.
Equipment purchase considerations begin with ownership and leasing choices, which both have benefits and drawbacks. The key to making the right decision is being aware of all the options and considering how they’ll affect your individual situation.
Customers can choose to finance or lease the equipment, but making a purchase from working capital or cash reserves may be better for acquiring equipment at the lowest cost. Service fees, finance charges and interest expenses are eliminated and ownership is immediate.
The biggest advantage to equipment ownership is depreciation, which can be listed as an income tax deduction allowing a taxpayer to recover the cost. It’s an annual allowance for the wear and tear, deterioration or obsolescence of the equipment.
A properly structured lease can provide many financial advantages to the lessee. It can free working capital for other investments while not affecting the customer's borrowing power or line of credit. Lease payments may provide a tax deductible business expense, reducing tax liabilities. Customers have several leasing options; however, installment sales contracts (loans) provide financing options for customers not interested in leasing.
Finance Lease- a capital lease designed for customers who want the option to own at the end of the lease. This option provides the same tax benefits as ownership including equipment depreciation, lower payments and equity buildup.
Flex Lease- designed for customers who want a finance lease with the option to return equipment after a stated interval or prior to lease termination. Customers can return the equipment at lease-end, or they can exercise a final bargain purchase option.
Tax Lease- an operating lease that qualifies for off-balance-sheet financing and allows the lease holder to make the lowest possible payment. On the other hand, tax leases do not build equity and cannot be modified during the life of the contract. At the end of the lease, customers may purchase the equipment or return it.
For more information on these and other leasing options, visit us online.
How Do You Choose the Best Option?
Each applicant should take some time to assess finances, weigh options and meet with a dealer representative for consultation. Cat Financial offers some insurance and financing tools to help speed up the process.
- The Financial Solutions Selector lists financing and insurance options on an individual basis.
- The Lease vs. Own Comparison Tool allows users to quickly assess the benefits of buying or leasing Cat equipment.
- The Payment Calculator estimates monthly payments and physical damage insurance options.
Whether you’re just starting out or looking to expand your fleet, equipment purchase decisions are important. No two companies present the same situation, so it only makes sense that each company’s financial solution be different too. Take some time to explore your options and talk to a representative to choose the best option for you.
We’d like to hear about your leasing and financing experience.
- Have you ever leased equipment?
- If so, how was your experience?
- If not, would you consider it in the future?
- Did you find the online tools listed helpful?
- How can Caterpillar help make the financing process easier?