Before deciding whether you should buy, rent or lease your next piece of construction equipment, there are a lot of questions to answer and pros and cons to consider. Think about how the equipment will be used and how often. Be honest about how well you can service and maintain it.
With rent-to-own equipment, you can pay for construction equipment like excavators and wheel loaders while using them on the job. A percentage of your monthly rental fee is typically applied toward the machine purchase. Or you can walk away at the end of your rental period.
Rent-to-own equipment can lower the amount of a machine’s cost you need to finance. Let’s say you want to purchase an excavator that costs $100,000, but you can only secure $85,000 in financing.
With a job lined up and a rental-purchase option agreed to, you rent the machine. As you use the excavator on the job, a portion of your rental fee — $15,000 in this hypothetical — goes towards the purchase of the machine.
Now the job is over, and you have decided you want to keep the excavator. With $15,000 of built-up equity, you can secure $85,000 in financing to finalize your purchase.
It’s also a great way to test machines out, see if they improve productivity and make informed decisions about purchasing.
Is Leasing Equipment Better than Buying?
When you lease equipment, you can get the most technologically advanced machines instead of settling for what you can afford. And you can get a new model every few years.
Leases can also help you improve cash flow. When you buy a machine, you have to put down a large sum of money, either as a cash purchase or as a downpayment for a financing agreement.
With a lease, you do not need to make that large lump sum investment. Instead, that cash is available to strategically reinvest in your business.
Leasing also typically provides the best hedge for potential declines in equipment values and is a good option if you want to avoid depreciation.
It can help you reduce risk and the downtime that comes with obsolete equipment.
You also have the flexibility to defer a buying decision until the end of the lease term. By then, you’ll know what your equipment needs will be and can explore options such as purchasing, returning, renewing or continuing to lease the equipment month to month.
Leasing is the most economical option for optimizing uptime due to its flexibility to return or trade up aging equipment and to avoid costly maintenance.
Before you lease, think about this:
- Penalties may be assessed if you break the lease early.
- Depreciation benefits are exchanged to the lessor for lower payments.
- Leases often include total hour usage limits within the lease period.
As with any major equipment decision, you should consult with your financial advisor.
Difference Between Renting and Leasing Equipment
Renting offers tremendous flexibility, because you can pay for equipment only when you need it — daily, weekly or monthly. It’s an easy way to supplement your current fleet without a long-term commitment.
Although machines can be rented for a shorter term than lease alternatives, the trade-off is that rental rates are generally higher than leasing rates.
Rental equipment is not always available when you need it. You’ll have to plan ahead when possible.
When possible, you’ll want to plan for ways to use the equipment on multiple jobs to get the most bang for your buck.
Machine utilization and length of term are key decision factors. If you are planning to use the machine frequently over a long period of time, a traditional rental agreement might not make sense.
However you structure your construction equipment deal, choosing your warranty is going to be another vital part of it.