Equipment leasing lets you rent a piece of equipment for a set period of time while making monthly payments. In a lease agreement, you are the lessee. The owner of the equipment, an equipment financing company or another lender, is the lessor.
Once the lease period ends, the equipment is returned to the owner. In some cases, you may have the option to buy the equipment at the end of your lease term.
Leasing equipment often makes more sense than buying (or financing) it if you only need it for a short period of time or don’t have the money to buy the equipment outright.
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Pros and cons of equipment leasing
Pros
No or low down payment.
Lease terms as short as a few months.
Lower monthly payment than purchasing, generally.
Payments can often be deducted as an operating expense on taxes.
Easier to upgrade equipment than if you purchase.
Cons
Equipment generally isn’t recorded as an owned asset for depreciation.
Overall cost can be higher compared with buying equipment, particularly for longer-term leases.
Equipment leasing vs. equipment financing
Let’s get clear on the difference between these two options.
Equipment leasing gives you access to the equipment for a set period of time in exchange for monthly payments. You won’t own the equipment at the end of the lease and will return it to the lessor. Though in some cases, you may have the option to extend the lease or buy the equipment.
Equipment financing lets you buy equipment using a specific type of business loan. The equipment serves as collateral for the loan, and if you default, the lender can seize it. Once you pay off your loan, you own the equipment outright.
To lease or not to lease?
Leasing generally makes sense if most of the following are true for you (in order of priority):
- You plan to use the equipment for a few years or less.
- The equipment becomes obsolete quickly.
- You don’t have cash on hand to make a down payment.
- You want to keep monthly payments as low as possible.
The timeframe is often the key determining factor in deciding whether to lease or finance equipment. If you run the math on both options for a timeframe that’s around three years or less, often (not always) you’ll see that leasing makes more sense. Of course, it also depends on the annual percentage rate (APR) you’re able to secure on a financing option.
Equipment leasing and financing comparison example
For example, say your business needs a commercial van priced at $50,000. Here’s how the two options shake out for a three-year term versus a five-year term. The example assumes 15% down and 8% APR for the financing plans, which could realistically be available to a borrower with strong credit. The leasing examples assume $2,000 due at signing and $950 paid per month. For the five-year comparison, we assume two consecutive 30-month leases at the same terms.
3-yr leasing plan | 3-yr financing plan | 5-yr leasing plan | 5-yr financing plan | |
|---|---|---|---|---|
Vehicle price | $50,000 | $50,000 | $50,000 | $50,000 |
Term | 36 months | 36 months | 60 months (two 30-mo lease cycles) | 60 months |
Due at signing/down payment | $2,000 | $7,500 | $4,000 (signing cost paid twice) | $7,500 |
Monthly payment | $950 | $1,332 | $950 | $862 |
Total of monthly payments | $34,200 | $47,952 | $57,000 | $51,720 |
Total cost over term | $36,200 | $55,452 | $61,000 | $59,220 |
What you have at the end | Nothing (return van). | Own van outright. | Nothing (returned twice). | Own van outright. |
This example shows that the breakeven point happens somewhere between the three- and five-year mark.
If you know you’ll only need the van for a few years, or that you’ll likely want to upgrade or change your vehicle at the three-year point, then leasing is the clear winner in this scenario.
If, however, you plan to keep the vehicle in use for at least five years, then financing to buy makes the most sense. You’ll pay slightly less to finance versus lease the van, plus you’ll own the asset at the end of the term.
Curious what equipment financing costs look like for your business?
Plug your numbers into our equipment loan calculator to see if financing equipment makes more sense than leasing for your business.
» MORE: Equipment loan calculator
Which type of equipment lease fits your needs
Before moving forward with an equipment lease, determine whether you need:
- Only one or two pieces of equipment for the long term.
- Multiple pieces of equipment, leased on an ongoing basis as you grow.
If your business is growing quickly or expanding across multiple locations, you’ll likely need many pieces of equipment over time. In that case, consider a master lease, which lets you lease additional pieces of equipment from your lessor without negotiating new contracts for each one. You have the choice between an operating lease and a capital lease (also known as a finance lease) with each piece of equipment under the master lease.
Once you’ve determined how much equipment you’ll need and whether a master lease makes sense, then decide whether an operating lease or a capital lease makes the most sense. Use the table below to help you decide.
Lease type | Operating lease | Capital (finance) lease |
|---|---|---|
Ownership | Lessor owns equipment throughout and after the lease. | Lessee may purchase equipment at the end of the lease term. |
Typical term | Shorter (up to ~5 years). | Longer (most or all of the life of the equipment). |
Maintenance and insurance responsibility | Typically the lessor. | Typically the lessee. |
Tax treatment | Deduct lease payments as operating expenses. | Deduct interest and depreciate the asset. |
Best for | Short-term equipment needs; fast-changing industries (tech, biotech, medical imaging). | Stable, long-term equipment needs (manufacturing, heavy machinery). |
How equipment leasing works
You can lease many different types of equipment, including construction and farm equipment, medical and dental machines, office equipment, communication technology, restaurant equipment, software, tools and vehicles.
The specific terms and costs associated with a lease will depend on the lessor, the equipment, the length of your contract and more. But in general, here’s what you can expect.
Contract period: Can vary between one and seven years.
Down payment: Low or no down payment, depending on your creditworthiness.
Lease payments: Monthly, quarterly, semi-annual and annual. Payments may start low, then increase later in the lease term.
Collateral: The leased equipment is often the collateral and it can be repossessed if you fall behind on payments.
End of lease: You return the equipment. You may have the option to renew the lease or buy the equipment.
Explore our roundups of the best equipment financing options by industry
Where to get an equipment lease
Small businesses have several options when considering an equipment leasing company.
Banks and financial institutions
If you work with a business lender already, you can start by asking if it offers equipment leasing. Banks often charge lower fees than other companies involved in equipment leasing and financing.
Equipment dealers and distributors
Equipment dealers and distributors may also provide services for leasing equipment through subsidiary leasing companies. You can visit the website or contact them directly to learn about your options.
Independent leasing companies
You may also work directly with an independent leasing company, which isn’t typically affiliated with equipment dealers and distributors. Getting quotes from a few companies can help you decide which one has the best terms for your business.
Equipment brokers
Equipment brokers have relationships with equipment manufacturers, retailers and lenders that finance purchases and leases. They can connect you with equipment owners, but they do charge a fee for their services.
Business equipment and taxes: Can you write off equipment lease expenses?
You can deduct equipment lease payments on your taxes as rent — as long as you actually have a lease, not a conditional sales contract. But if you have a conditional sales contract, you’re considered the owner and can generally take depreciation deductions instead of a deduction for rent.
The IRS doesn’t spell out specific definitions of “lease” or “conditional sales contract.” However, it says conditional sales contracts tend to contain provisions like:
- After you’ve paid a certain amount, you’ll get the title to the equipment.
- Your agreement says you have the option to buy the property for a nominal price, like $1.
- The lessor counts some or all of your lease payments toward an equity interest in the equipment.
Article sources
NerdWallet writers are subject matter authorities who use primary, trustworthy sources to inform their work, including peer-reviewed studies, government websites, academic research and interviews with industry experts. All content is fact-checked for accuracy, timeliness and relevance. You can learn more about NerdWallet's high standards for journalism by reading our editorial guidelines.
- 1.Internal Revenue Service. Income and Expenses. Accessed Aug 28, 2026.
