Loan vs Lease

This is the number that feels most urgent, but it’s often the least important metric. A lower monthly payment on a lease might free $600/month — but if you lose $18,000 in asset equity over 5 years, you’ve paid a high price for that breathing room. Only prioritize monthly payment when your cash position genuinely requires it.

Add up every dollar that leaves your account: down payment, all monthly payments, any balloon payment, and fees. This is your break-even floor. If you walk away with an asset at the end, subtract its value. If you walk away with nothing (a lease), the total cash out IS your total cost.

Strip away the principal repayment and look at what you’re paying just to access the money. On a lease, this is the money factor times the adjusted capitalized cost. On a loan, it’s total interest. This number tells you what the lender is earning. Compare it across options ruthlessly.

Loans build equity. Leases don’t. But here’s the nuance: equipment that depreciates rapidly (technology, specialized machinery) may be worth less than the loan balance at the end of its useful life. In those cases, the “equity” argument for owning weakens considerably. Only own what retains value.

What does it cost to exit early? Loan prepayment penalties are usually modest or zero. Early lease termination can cost 6–12 months of remaining payments. If your business operates in a dynamic environment — growth, contraction, pivots — the exit cost of your financing structure matters as much as its cost-of-capital.