Quick answer
Buy, with cash or finance, when you'll use the equipment for most of its working life and want to own what's left at the end. Lease when it dates quickly, needs regular replacement, or you'd rather keep cash free and hand the asset back. The deciding question isn't the monthly payment, it's what you hold, owe and can claim at the end of the term, so compare the full five-year picture.
Key points
- Monthly payments mislead; compare total cash out less what the asset is worth at the end
- Buying on finance (chattel mortgage or hire purchase) gives ownership and, for eligible assets, depreciation or write-off claims
- Leasing generally means deductible rental payments but no ownership unless you pay the residual
- End-of-lease conditions, such as return condition and excess usage, are where leases quietly cost extra
- Most growing businesses mix both, owning long-life gear and leasing items that date fast
A café owner in Newcastle gets two quotes for a new espresso machine. Buying it outright is $14,000. Leasing it is a modest monthly figure that looks like a bargain next to a lump sum. Nobody has said what happens in year five, when the machine is still running and the lease is over, or when it has failed twice and a better model has arrived.
That gap, between the monthly number and the end of the story, is where most leasing-versus-buying mistakes are made. This guide gives you a way to compare the two properly.
Why shouldn’t you decide on the monthly payment?
Because the two options aren’t selling the same thing. A purchase, even a financed one, delivers an asset you own at the end. A lease delivers the use of an asset for a period and then asks you to do something: return it, renew it or buy it.
Compare these instead:
- Total cash out over the period, including deposits, fees and any final payment.
- What you hold at the end, which for a purchase is the asset’s resale or ongoing-use value, and for a lease is usually nothing unless you buy it out.
- What you can claim, in tax terms, over the same years.
- What you’re committed to, including early exit charges if your business changes.
Our equipment finance calculator lets you run the repayment side. The ownership and tax side needs the thinking below.
What does buying on finance actually give you?
You can buy with cash, with an unsecured loan, or with asset finance. The two asset-finance forms most relevant here are the chattel mortgage and hire purchase. In both, you take the asset from day one, you carry its depreciation, and the lender holds security over it until the debt is cleared.
What this gets you:
- Ownership, or an agreed path to it, so the asset can be refinanced, sold or used as part of a sale and leaseback later.
- Tax claims through depreciation, and for eligible assets under the threshold, a full deduction in the first year. See our guide to the instant asset write-off and equipment finance.
- Freedom to modify and use heavily, because nobody is going to assess it for wear at the end.
- A residual you can aim for, such as a balloon, if you want lower repayments. The balloon payments guide explains the trade.
What it costs you: the asset’s value can fall faster than you expect, you carry the risk of obsolescence, and you commit to the whole repayment term.
What does leasing give you?
In a lease, the lessor owns the equipment. There are two broad types, covered in more depth in our comparison of finance leases and operating leases:
- A finance lease runs for most of the asset’s useful life. You pay it off through rentals and may buy the asset at the end for an agreed residual.
- An operating lease is shorter and the lessor keeps the residual risk. You return the asset or renew.
The appeal of leasing is real. Rentals are generally deductible when they’re business-related, you can often upgrade at the end, and the lessor may bundle servicing or maintenance. You aren’t left holding a three-year-old tablet fleet that nobody wants.
The costs are subtler: you don’t build equity, you pay a premium for flexibility, and the contract’s end-of-term conditions can bite.
Where do leases quietly cost extra?
The monthly rental is only part of a lease. Before signing, read for these:
| Clause | What to look for |
|---|---|
| Return condition | What counts as fair wear and tear, and who decides |
| Excess usage | Kilometre, hours or copy limits, and the charge for going over |
| Early termination | Whether you pay all remaining rentals if you close or relocate |
| Residual or buyout | The price to keep the equipment, and whether it’s fixed or set at the end |
| Insurance and maintenance | Who must insure, who services, and what happens if it’s written off |
| Renewal terms | Whether you can extend and at what rental |
A lease with a low rental and a steep return-condition clause can end up dearer than a purchase. The only way to know is to read the schedule, and to ask the lessor for the figure you’d pay in a few typical scenarios: handing it back on time, ending early, and buying it out.
An illustrative five-year comparison
Consider a Melbourne packaging business choosing between buying and leasing a $60,000 forklift and racking package it expects to use for ten years. The figures below are illustrative only, to show the shape of the comparison, not quotes.
| Buy on a chattel mortgage (5 years) | Finance lease (5 years) | |
|---|---|---|
| Deposit or upfront | $6,000 | Nil, first rental in advance |
| Total repayments over term | About $67,000 | About $70,000 including a $12,000 buyout |
| Owned at end of term | Yes, outright | Only if the buyout is paid |
| Likely second-hand value in year five | About $24,000 | n/a unless bought out |
| Tax treatment | Depreciation on the asset plus deductible finance charge | Rentals deductible |
| Cash position in year five | Asset worth $24,000 still in the business | $12,000 more to pay to keep it |
On these assumptions, buying wins, because the business plans to use the asset for ten years. Flip the facts: suppose the business needs this model only through a five-year contract and will then change its warehouse layout. The lease or an operating lease starts to look sensible, since the business doesn’t want the asset after year five.
Notice that the answer changed because of the plan for the asset, not the arithmetic.
What kinds of equipment favour each approach?
A rule of thumb many accountants use is to match the finance term to the asset’s useful life.
Lean towards buying:
- Heavy machinery, workshop equipment, ovens and fixed plant
- Vehicles you’ll run for many years, such as work utes and trucks (see how to finance a work ute)
- Anything with a strong second-hand market, where resale value protects you
- Eligible assets where a first-year deduction helps your tax position
Lean towards leasing:
- Technology that dates fast: computers, point-of-sale systems, phones
- Equipment where a supplier bundles servicing, such as coffee machines and printers
- Items needed for a defined project or contract
- Cases where cash is tight and the lessor’s flexibility is worth paying for
Often mixed: a business may buy its long-life machinery on a chattel mortgage and lease its fast-moving technology. Our comparison page has a head-to-head table of the two paths.
How do lenders see leases?
Whether you lease or borrow, the repayments count against your capacity. A lender assessing a new application will add up your lease rentals along with loan repayments, so heavy leasing can reduce how much else you can borrow. Our guide to what lenders mean by serviceability explains how.
A bank that already holds your accounts will often be a cost-effective source of asset finance, and worth asking early. If you’ve been told no, or the asset is unusual, there are specialist equipment financiers who look at the asset first and the paperwork second.
A short decision checklist
Before you choose:
- How long will you realistically use the asset? Write the number down.
- What would it be worth to someone else at the end of that period?
- What does your accountant say about tax on each structure for your turnover?
- Have you seen the end-of-term costs in writing, for each scenario?
- Can the business carry the commitment through its slowest quarter?
- Is there a PPSR registration against the asset, and who will hold it? The PPSR explainer covers why that matters.
If you can answer those, the right option is usually clear.
Turning the comparison into a quote
Put both options in front of someone who does this every day, and the numbers usually settle the question faster than debate. If you’ve got an asset in mind, tell us what it is, what it costs and how long you’d want it. The enquiry takes about a minute, and nothing about it appears on your credit file. We keep your details with us rather than circulating them to a string of financiers, and a person reads your situation before they call, so the conversation starts with your equipment rather than a script. The more precisely you fill in the price and your trading history, the better the first option will fit.
Frequently asked questions
Is it cheaper to lease or buy equipment?
Over the whole life of long-lived equipment, buying is usually cheaper because you keep an asset that still has value. Leasing can be cheaper for equipment that you would replace in two or three years anyway, since you aren't paying for years of use you won't get. The honest answer needs the quotes for the specific asset, laid out over the same period.
Are lease payments tax deductible?
Generally yes for a business lease, because they're a business expense, and GST is usually claimable on them if you're registered. When you buy, you instead claim depreciation or, where eligible, the instant asset write-off. Your accountant should confirm which structure suits your turnover and your tax position.
What happens at the end of an equipment lease?
Depending on the contract, you hand the equipment back, extend the lease, upgrade to a newer model, or buy it for a residual or agreed value. The terms about return condition, excess usage and early termination are what to read most carefully, because they can add costs that weren't visible in the monthly figure.
Can I lease equipment with a short trading history?
Sometimes. Lessors look at the business's ABN age, bank statements and the asset's resale market. Standard assets with a strong second-hand market are easier to lease than specialised ones. Newer businesses may need a deposit or personal guarantee.
Does leasing appear as debt?
Operating and finance leases are commitments that lenders will see and weigh when they assess your repayment capacity. Even if your accounts treat a particular lease differently, the repayments still reduce the cash available for other borrowing.
Can I swap from leasing to buying later?
Often yes, by buying the asset out at the end of the term for its residual, or by refinancing. It's worth knowing the buyout figure before you sign, so a future purchase isn't a negotiation from a weak position.