Lease vs Buy Calculator

The Lease vs Buy Calculator supports accounting, tax planning and financial decision-making involving long-lived assets. Whether you are deciding whether to lease or buy equipment, calculating depreciation charges for your accounts, or estimating residual value for a lease agreement, accurate asset cost modelling is essential. Depreciation is not just an accounting entry, it represents the genuine economic cost of using an asset, and understanding it correctly allows you to price products, evaluate capital investments and comply with tax and accounting requirements.

Enter the asset cost, salvage or residual value, useful life and the applicable depreciation rate or method. The calculator produces the annual depreciation charge, the accumulated depreciation and the net book value at each point in the asset's life. For lease calculations, it also shows the monthly payment and total cost over the lease term.

Before purchasing or leasing equipment, to model the total cost of ownership including depreciation, financing and the residual value at disposal.
For annual accounts preparation, to calculate depreciation charges for fixed assets in accordance with your chosen accounting policy.
For tax planning, to determine whether accelerated depreciation or straight-line gives a better tax outcome given your business's profitability profile.
When making lease-versus-buy decisions, to compare the true all-in cost of leasing against the depreciation plus financing cost of ownership.
For business valuation or insurance purposes, to establish the current net book value of fixed assets in your balance sheet.

Straight-Line Depreciation: An equal annual charge that spreads the depreciable cost evenly across the asset's useful life. Simple, predictable and the most common method for financial reporting.

Declining Balance: An accelerated depreciation method that applies a fixed rate to the reducing book value each year. Front-loads charges and is often preferred for tax purposes to accelerate deductions.

Residual Value: The estimated value of an asset at the end of its useful or lease life. A higher residual reduces monthly lease payments but may not reflect actual market value at disposal.

Useful Life: The period over which an asset is expected to provide economic benefit. Tax authorities publish standard useful lives for different asset categories; accounting useful life may differ.

A common mistake in depreciation is using the same useful life for both accounting and tax purposes without checking the applicable tax rules. Most tax authorities mandate specific depreciation rates by asset class, using the wrong rate can lead to under or overclaiming tax deductions. A second mistake in lease decisions is comparing the lease payment against only the loan payment without including the ownership costs of the bought asset, depreciation, maintenance, insurance and the opportunity cost of the capital tied up in the purchase.

Compare lease and ownership costs using the Lease vs Buy Calculator. The Loan Calculator will show the financing cost of purchasing the asset outright. For tax-motivated depreciation decisions, the Tax Deduction Calculator can quantify the annual tax saving from each depreciation method.

Frequently Asked Questions

Not necessarily, the answer depends on how long you use the asset, what happens to its value and what you could earn on the capital used to purchase it. Leasing transfers depreciation risk to the lessor: if the asset depreciates faster than expected, the lessee is not exposed to that loss. Buying outright retains the residual value but also the full depreciation risk. For assets that depreciate rapidly, technology equipment, vehicles, leasing often delivers a lower total cost of use over 3 to 5 years. For assets that retain value or appreciate, certain real estate, specialist equipment, buying typically wins over longer horizons.

An operating lease is a rental arrangement, the asset remains on the lessor's balance sheet and the lessee records only the periodic payment as an expense. A finance lease transfers substantially all the risks and rewards of ownership to the lessee, the asset and corresponding liability appear on the lessee's balance sheet. The accounting distinction matters significantly for financial reporting: finance leases increase both assets and liabilities, affecting leverage ratios and financial covenants. Under IFRS 16 (and ASC 842 in the US), most leases that were previously treated as operating leases are now required to be recognised on the balance sheet, reducing the off-balance-sheet financing advantage that operating leases once provided.

Accelerated depreciation methods, particularly declining balance, produce larger depreciation deductions in early years, reducing taxable profit sooner and deferring tax liability to later years. This creates a timing benefit: the tax saved in early years can be invested or used in the business, generating returns before the deferred tax is eventually paid. Straight-line depreciation produces equal deductions each year, simpler and more predictable but without the early-year tax benefit. Tax authorities typically mandate specific rates by asset category, which may differ from the rates used for financial reporting purposes, creating temporary differences that appear in deferred tax calculations.

Residual value is the most uncertain and consequential variable in a lease-versus-buy analysis. For the buy scenario, residual value is the price you can realistically achieve when selling the asset, based on comparable market transactions for similar assets at a similar age and condition. For the lease scenario, the residual is set by the lessor based on their own market assessment. If the lessor's residual is optimistic relative to market reality, the lease payments will be lower than justified, benefiting the lessee. If the residual is pessimistic, the lessee overpays. Always research actual second-hand market values independently before accepting the residual in a lease agreement as the basis for comparison.

Under an operating lease, you generally cannot claim depreciation, instead, the lease payments themselves are deductible as a business expense. Under a finance lease, where you effectively own the asset for accounting purposes, you typically can claim depreciation on the capitalised asset value in addition to the interest component of lease payments. The specific tax treatment depends on your jurisdiction's rules, some countries follow the accounting classification, others have their own independent tax lease classification. Always confirm with your accountant how a specific lease will be treated for tax before signing, as the difference between operating and finance lease classification can significantly affect your tax liability.