Here is our comprehensive comparison of leasing vs. financing a forklift. Look below for our online calculator that will help you compare the lease versus finance payments for a forklift.
Choosing the right method to acquire a forklift is a crucial decision for businesses that rely on material handling equipment. Forklifts are indispensable in various industries, facilitating smooth operations and boosting productivity. When it comes to obtaining a forklift, two primary options stand out: leasing and financing. Each method comes with its own set of benefits and considerations, making it essential for businesses to carefully weigh their options before making a decision. In this article, we will compare lease and finance payments for a forklift, examining the pros and cons of each to help businesses make an informed choice.
Leasing a Forklift
Leasing a forklift involves entering into a contract with a leasing company to use the equipment for a specified period. This agreement typically covers maintenance, servicing, and sometimes even upgrades. Here are some key advantages of leasing a forklift:
- Lower Monthly Payments: Lease payments are generally lower compared to financing payments since businesses are essentially renting the equipment for a specific time frame.
- Predictable Expenses: With a lease, businesses can accurately forecast their expenses, as maintenance and servicing costs are often included in the lease agreement.
- Access to Latest Technology: Leasing allows businesses to access the latest forklift models without committing to a long-term purchase. This is especially beneficial for industries where technological advancements are frequent.
- Tax Benefits: Lease payments are usually considered operational expenses, making them tax-deductible for businesses, thus reducing the overall tax burden.
However, leasing also has some potential drawbacks:
- No Ownership: Businesses do not own the forklift at the end of the lease term, which means they cannot build equity in the equipment.
- Limited Customization: Lease agreements may restrict modifications or customizations to the forklift to protect the lessor’s investment.
- Long-term Costs: Over an extended period, leasing may prove more expensive than purchasing a forklift outright.
Financing a Forklift
Financing a forklift involves securing a loan or a lease-purchase agreement from a financial institution or the manufacturer. Businesses make regular payments over the agreed-upon term, eventually owning the forklift outright. Let’s explore the advantages of financing:
- Ownership: Financing allows businesses to build equity in the forklift over time, making it a valuable asset.
- Flexibility: Unlike leasing, financing agreements often have more flexibility in terms of modifications, as the business is the eventual owner.
- Cost-Effectiveness: While monthly payments may be higher than lease payments, financing can be more cost-effective in the long run since ownership is acquired.
- Resale Value: As the owner, businesses have the option to sell the forklift when it’s no longer needed, potentially recouping some of the investment.
On the other hand, financing has its own set of considerations:
- Higher Initial Costs: Down payments and interest rates may result in higher initial expenses compared to leasing.
- Responsibility for Maintenance: Unlike leasing, where maintenance is often included, businesses must handle maintenance costs themselves.
- Depreciation: Over time, the forklift’s value may depreciate, affecting its resale value.
Compare the Lease vs Finance Payments for a Forklift
Use this calculator to compare the lease vs finance payments for a forklift. If you don’t have all the information, you can still estimate payments.
Usually, you will know the payment of fair market value lease (FMV) from your dealer. What you may not know is the residual the dealer holds at the end of the term. For a 5-year term, you can start with 20% residual. For a 3-year term, you can play with a higher residual.
You might not know the interest rate for the FMV lease, but you can guess it will be slightly higher than a finance interest rate.
At the end of the lease, if you finance the forklift, you will own it and can recover some costs by selling it. The challenge is that unless you are in the business of buying and selling forklifts, it might be difficult to sell the used forklift for the full retail value. Therefore, use a reasonable amount of 10%. A forklift dealer will likely give you 10% of the original purchase cost as a trade-in value.
Lease versus Financing Calculator
Choosing the Right Financing or Leasing Option
The decision between leasing and financing a forklift depends on a variety of factors, including the business’s financial situation, its long-term needs, and the nature of its operations. Businesses should consider the following questions:
- How long will the forklift be needed? If the equipment is required for a short-term project or during peak seasons, leasing may be more suitable.
- What is the budget and cash flow situation? Businesses with limited upfront capital may prefer leasing to keep monthly expenses lower.
- Is owning the forklift a priority? If ownership and asset accumulation are essential, financing may be the better choice.
- How quickly does the industry technology evolve? If frequent upgrades are necessary, leasing ensures access to the latest models.
The best Financing Option May be Different for Every Company
Comparing lease and finance payments for a forklift requires careful analysis of the business’s unique circumstances. Leasing offers lower upfront costs and more predictable expenses, making it ideal for short-term needs and industries with rapidly advancing technology. Financing, on the other hand, provides ownership, long-term cost-effectiveness, and more flexibility in customization. Businesses must weigh the benefits and drawbacks of each option to make an informed decision that aligns with their goals and financial capabilities. Ultimately, choosing the right method will ensure efficient material handling and contribute to the overall success of the business.