Buying vs leasing – both are completely different concepts, but both of these help a Business.
Buying, on one hand, is paying the amount in full and taking the ownership of a thing, equipment, an asset or a car. Leasing, on the other hand, is all about taking a thing or an asset on rent. Usually, when a business owner just starts out, they don’t have a lot of money to invest into Buying fixed assets for their business. As a result, leasing seems to be a better option for them.
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But what is the most viable option for the business owner – buying or leasing? And why one of these is so very valuable to a business?
In this article, we will go into the detailed analysis of what buying and leasing are and we will also look into a comparisons between them.
Buying vs Leasing Infographics
There are many differences between buying and leasing. Let’s have a look at them one by one –
Buying and Leasing Differences
There are some top differences between buying and leasing. Here are they –
- Buying is a transfer of ownership. Leasing is never about a transfer of ownership even if you pay every month/year.
- Buying needs an upfront cost and it’s usually a huge amount. Leasing doesn’t need any upfront cost and the terms are very easy to follow.
- Buying doesn’t have any flexible terms and normally not very easy to get access to. The terms and conditions in leasing are pretty much flexible.
- Buying is especially useful to medium to large business owners. Leasing is useful to new business owners.
- Buying and leasing decisions should be made strategically and not on a short burst of thinking.
Buying vs Leasing (Comparison Table)
| Basis for Comparison of Buying and Leasing | Buying | Leasing |
| 1. Meaning | Buying is complete ownership transfer of a product/asset. | Leaning is getting the ownership only to use the product/equipment. |
| 2. Ownership in Buying and leasing | Full ownership. | Ownership to use. |
| 3. Exchange value | A lot. | Much less. |
| 4. Flexible terms | No flexibility. | Lot of flexibility. |
| 5. Monthly/yearly obligation | No. | Yes. |
| 6. Useful to | Medium to big business owners. | New business owners. |
| 7. Useful because | You pay an amount and you own it; there are no discrepancies. | You pay monthly/annually to use it. |
| 8. Tax deduction in buying and leasing | Under Section 179 of Internal Revenue Code you can deduct the full cost of the purchased asset. | Can be shown as business expenses and can get tax benefits. |
Conclusion – Buying vs Leasing
Buying and leasing are very important aspects of a business.
A business needs to know what to buy and what to take on a lease.
If the decision isn’t taken prudently, it will affect the business drastically especially when a business is just starting out.
The most important thing to consider while deciding for buying and leasing is the usage. Depending on the ratio between usage and cost, the business owner should take the decision. If the ratio is bigger, buying is a good option; if the ratio is lower, leasing is the right option.
This proportion though doesn’t always work. Because you would see that if you buy the asset, you will save few thousand dollars in two-three years. In that case, buying would be a better option even if the ratio between usage and the cost is lower.
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This has been a guide to a comparison of Buying vs Leasing and its top differences. You may also have a look at these other interesting comparsions.
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The post Buying vs Leasing | Top 8 Differences You Must Know! [Infographics] appeared first on Learn Investment Banking: Financial Modeling Training Online.
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