Equipment Lease Calculator

Our equipment lease calculator allows you to estimate the potential costs of an equipment lease by comparing three common lease options: a fair market value lease, $1 buyout lease, and 10% option lease. Estimate your monthly payment and total cost by changing key inputs like the interest rate, down payment, and length of the term.

How the Equipment Leasing Calculator Works

Our equipment leasing calculator allows you to estimate your monthly payments, the balance to purchase the equipment at the end of the lease, and the value of the equipment at the end of the lease. To calculate, enter the equipment’s cost, rate, term, your down payment, and then select the type of equipment lease you’re considering.

The three types of equipment leases included in our calculator are:

1. $1 buyout lease: Your payments go towards interest and paying down the full cost of the equipment. This type of lease is similar to purchasing the equipment with a loan. Your monthly payments will be similar and, at the end of your term, you owe a symbolic $1 to own the equipment outright.
2. 10% option lease: This lease is similar to a dollar buyout lease as the purchase price is locked in at the start of the lease. At the end of your term, you have the option to purchase the equipment for 10% of the equipment’s predetermined purchase price. The monthly payments will be lower than a $1 buyout lease, but higher than a fair market value lease.
3. Fair market value lease: A fair market value (FMV) lease operates similarly to leasing a house or car. You make a monthly payment to use the equipment, with the expectation that you will return it at the end of your term. Many operating leases give you the option to purchase the equipment at fair market value when your lease ends.

The monthly lease payments for an operating lease will never be higher than a loan or lease to own situation, assuming the same general interest rates and term length.

Typical Equipment Lease Rates, Terms & Costs

Interest rates for equipment leases vary based on the financing company’s risk, which is based on several different factors. These include your credit, the equipment being financed, and the amount of money you’re able to put down upfront. $1 buyout leases range from 6% to 15%, 10% option leases from 7% to 16%, and FMV leases from 6% to 30%

An equipment lease generally has lower monthly payments than an equipment loan. The tables below show the average costs of each equipment lease type and an example of what your costs might look like.

Equipment Lease Rates & Terms

With the $1 buyout lease, the lessor is recouping the entire cost of the equipment by the end of the term, less the symbolic $1. This allows borrowers to obtain rates between 6 to 15% with down payments as low as 5% and with typical terms between 2 to 5 years and stretching up to 10 years when the estimated life of the equipment allows.

The 10% option lease represents a compromise with lower payments for the borrower and the option to walk away from the asset at the end of the term. Typical rates are between 7% and 16%, with down payments for well-qualified borrowers starting at 5%. Lease terms are typically between 2 and 5 years and can go up to 90% of the estimated life of the equipment.

Borrowers looking for the lowest monthly payments should pursue an FMV lease, which usually comes with shorter terms between 1 to 3 years, interest rates ranging from 6 to 30%, and the potential for no down payment for prime borrowers.

“Your credit and business circumstances are unique. Your actual experience may vary wildly from online estimates of potential finance offers. This is particularly true in the world of equipment financing and leasing. There are more than 100 different equipment financing programs in the marketplace.

“These programs all analyze risk differently on variables that may include items such as your personal and business credit, installment loan history, time in business, industry, equipment type, age, and hours or mileage, and company cash flows, including monthly revenue and average or ending balances on bank statements.”

―Rob Misheloff, president, Smarter Finance USA

Equipment Lease Calculator Inputs

Our equipment lease calculator enables you to enter the value and select the type of equipment being purchased as well as the down payment and expected interest rate. By adding in the length of the lease and the expected equipment life, we’re able to generate a projected monthly payment as well as the total cost of the lease and projected equipment value at the end of the term.

Dollar Value of the Equipment

This is the agreed-upon price of the equipment. Make sure you include any add-ons and soft costs, such as delivery and installation, to the total cost of your equipment. Keep in mind that a professional appraisal may be required for used equipment if the equipment financing company is not the equipment seller.

Type of Equipment Lease

We included the three most popular equipment leasing options with our calculator. You can select to see the costs for a $1 option lease, a 10% option lease, or an operating lease (FMV lease). A fourth option is a 10% purchase upon termination (PUT) lease, which essentially shares inputs and outputs of the 10% option lease.

Effective Interest Rate

When you lease equipment, the lessor is effectively putting up a lump sum of money on your behalf, which you will pay off with interest over time. The effective interest rate on a lease can be anywhere from the low single digits to more than 30%, with the average is around 6% to16%.

Down Payment

How much are you paying upfront before you get your equipment? The more you pay, the lower your monthly payments will be, and the less you may have to pay to own the equipment later. In many cases, the lessor will require a minimum of 5% down, but you may be asked to pay 10% to 20% down. Larger down payments should be expected for equipment that loses value quickly or when the borrower has subprime credit.

Length of the Lease

While the length of an equipment lease can vary significantly, it should be shorter than the expected shelf life of the equipment. In general, longer leases carry lower monthly payments but have higher interest rates, resulting in a higher overall dollar cost.

Expected Equipment Life

Under regular usage, how long is the equipment expected to be productive? Whoever ends up with the equipment at the end of the term―either you or your lease provider―will want to make sure the equipment still has value and/or shelf life left.

Equipment Lease Calculator Outputs

Our equipment lease calculator outputs several fields, including the amount of monthly lease payments, the total cost of the lease, the cost to purchase the equipment at the end of the lease, and an estimate of the asset’s remaining value. These values will help business owners estimate some of the most common costs associated with an equipment lease.

Monthly Lease Payments

This shows you an estimation of what your monthly payments will be. This number is calculated, assuming that all payments are the same amount and are made once per month.

Total Lease Cost

This amount is the total amount you will pay to lease the equipment over the term, including the amount of the equipment financed as well as finance charges, sometimes known as equipment rental charges. This amount will fluctuate based on how long you lease the equipment and the effective interest rate you are charged.

Total lease cost can be a helpful figure to compare to the cost of an equipment loan or other form of financing and can be used to help you understand how the total cost of leasing the equipment would compare to an equipment loan on the same equipment. This can also be used to estimate the cost of using the equipment for a specific period of time versus buying the equipment outright.

Cost to Purchase

This represents how much you’ll have to pay at the end of your lease term to purchase the equipment. A $1 option lease, or an equipment loan, will leave you with a negligible balance to purchase the equipment. However, a 10% option lease or FMV lease will have significant costs if you want to own the equipment at the end of the lease’s term.

Equipment Value at Lease End

The value of the equipment is calculated using a straight-line depreciation method based on the value of the equipment at the beginning of the lease and the expected lifetime of the equipment. This figure is especially important for operating leases, where the lessee may want to buy the equipment from the lessor at the end of the lease but will have to pay fair market value.

Underestimating the Cost of an Equipment Operating Lease

This equipment leasing calculator assumes straight-line depreciation as opposed to other common methods―accelerated depreciation and MACRS depreciation. Essentially, we calculate the depreciation assuming the equipment will lose value at an even rate during its life.

For example, if the equipment has an expected life of 5 years, we assume that it loses 20% of its value each year. Thus, if you have a 2-year fair market value equipment lease, we assume the lease will lose 40% of its value during the lease.

In reality, depreciation doesn’t happen in a straight line. Typically, depreciation occurs at an accelerated pace in the early years of the equipment’s life. Thus, the equipment may lose 50% or 60% of its value by year-2, even if the equipment has a 5-year life.

The lessor will want to be compensated for this greater loss of value early in the lease. In some cases, the lessor will require a down payment to compensate for the effect. However, other times, they may increase the monthly payment. If the latter is the case, the equipment leasing calculator may underestimate the required payments for operating leases.

Three Types of Equipment Leases

$1 Buyout Lease

In a lease to own arrangement, the lessee―the small business leasing the equipment―has the option to buy the equipment from the lessor―the financing company―at the end of the lease term, for a nominal sum. The sum for a $1 buyout lease is just like it sounds―$1.

So, at least in one sense, a $1 buyout lease operates similarly to an equipment loan. Effectively, you own the equipment when your $1 buyout lease is done. You get all the benefits of owning the equipment, such as the tax advantages, throughout the lease term.

However, unlike with an equipment loan, you typically can’t pay off an equipment lease early to save interest. The lease is an agreement to pay a specific number of set monthly payments, not principal plus interest, so paying off a lease early means paying off the full lease contract.

10% Option Lease

A 10% option lease is a capital lease like the $1 buyout lease. This means you also get the benefits of owning the equipment for tax purposes, but your payments are also typically less than they are for the $1 buyout lease. This is due to you having the option to purchase the equipment at the end of the term for 10% of the equipment’s value when you sign the lease.

For example, if you use a 10% option lease to purchase a $100,000 piece of equipment, then you’re financing $90,000. You’ll have the option to purchase the equipment at the end of the term for the additional $10,000 or 10% of the equipment’s value.

A 10% option lease is a good choice for someone who isn’t sure whether they’ll want to purchase the equipment down the road. You can get lower monthly payments with a 10% option while you wait to see if you will want the equipment long-term.

Fair Market Value Lease

With an FMV lease, you often have the option to buy the equipment from the lessor at the end of the lease term but will be charged for the equipment’s current fair market value. Your monthly payments will typically be lower with an operating lease, but your payment to purchase the equipment, if offered, will be much higher.

Because this is an equipment lease, the lessee doesn’t have to buy the equipment. Rather, at the end of an FMV lease, the lessee can return the equipment and walk away. This is an especially attractive option if new technology has made the equipment obsolete or the equipment is no longer essential to your business.

An operating lease also doesn’t give you the tax benefits of owning the equipment as the other leases do, but it also won’t show up on your business books as debt. This is a good thing if you’re looking to get additional financing.

Equipment Leasing Examples

To help get a better idea of what the different types of equipment leases would cost, let’s look at an example. In the table below, we show what each lease would look like if we were buying a piece of equipment valued at $25,000, with an interest rate of 10%, a $1,250 (5%) down payment, and get a 5-year lease.

Equipment Lease Cost Examples

Equipment Lease Qualifications

Qualifying for an equipment lease is much easier than qualifying for traditional financing you may be used to, like a Small Business Administration (SBA) loan or a bank loan. Traditional financing typically requires prime borrowers who have collateral to put down. With equipment leasing, the equipment is used as collateral so that you don’t have to provide any. The only cost you may need to come up with upfront is the down payment. The typical requirements are:

• Credit score: 600+
• Down payment: 5%+
• Other requirements: No open bankruptcies, tax liens, or child support collections.

Alternatively, if you have credit challenges or are a newer business, Smarter Finance USA may be able to help you. It offers flexible financing options, can lend up to $250,000, and can usually get you funded within 1 week.

Visit Smarter Finance USA

What Types of Equipment Can You Lease?

Equipment leasing companies typically are looking to finance major purchases and equipment that has both a longer life and reasonable resale value. Types of equipment that can be leased range from restaurant equipment to heavy machinery and commercial vehicles, such as semi-trucks.

Some examples of equipment that would be good candidates for equipment leasing include:

• Heavy machinery
• Semi-trucks
• Ovens, ranges, refrigerators, and similar appliances
• Tooling equipment, laser cutters, 3D printers, and more
• Automation equipment, conveyor equipment, and similar equipment
• Farm and agriculture machinery
• Food trucks and food carts

For smaller purchases like hand tools or microwaves, or equipment with short shelf lives like software, computers, or dishware, consider looking into unsecured business loans.

Equipment Lease vs Equipment Loan

This equipment lease calculator doesn’t allow you to compare the cost of an equipment lease vs an equipment loan. That said, the “$1 lease” option essentially reflects the cost of buying the equipment using an equipment loan, so you get a rough estimation for what your loan might cost.

Certain tax benefits come with equipment purchases, thanks to Section 179 of the tax code, and you can calculate those savings using our Section 179 Calculator.

Keep in mind that equipment financing is not the same as working capital loans. For example, financing the purchase of a tractor-trailer requires equipment financing while financing the growth of a trucking business needs a traditional business loan for truckers. To learn more about financing your next equipment purchase, read our in-depth guide on equipment loans and leasing.

Bottom Line

Leasing equipment is a popular alternative to taking out a loan or purchasing the equipment outright and comes with benefits such as lower monthly payments and greater flexibility. Leasing equipment can save you money. However, it can be more expensive than other methods, in the long run, depending on whether you plan to keep the equipment and other factors.