For CFOs
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Lease vs buy vs loan
FOR CFOS
Lease, buy or borrow? Compare before you commit.
Three ways to pay for the same machine, with very different effects on cash flow, bank lines and your balance sheet. Here's how they compare.
CASH OUT IN MONTH ONE
₹1 CR MACHINE
~₹2L
~₹22L
₹1Cr
Lease
First rental
Term loan
Margin + first EMI
Buy outright
Full price
Illustrative: ₹1 Cr asset, 60-month lease at 8% IRR, loan at 10% with 20% margin. Excludes tax and GST.
SIDE BY SIDE
Seven things that change.
How each option affects cash, credit, tax and risk across the life of the asset.
WHAT CHANGES
CAPEXO
Operating lease
Buy outright
Term loan
Upfront cash
Little or no upfront outlay
Full price paid on purchase
Margin money usually required
Cash flow
Fixed rentals across the lease term
One large outflow
EMIs of principal plus interest
Bank credit lines
Left free for other borrowing
Cash reserves go down
Uses up borrowing capacity
Tax treatment
Rentals generally deductible as a business expense
Depreciation claimed on the asset
Interest and depreciation claimed
Balance sheet
Off balance sheet under Indian GAAP. On balance sheet under Ind AS 116
Asset recorded on balance sheet
Asset and loan both recorded
Resale risk
Return option limits exposure to resale value
You carry the full resale risk
You carry the full resale risk
End of term
Return, re-rent or buy the asset
You own it; upgrading means selling
You own it once the loan is repaid
Illustrative comparison. Accounting and tax treatment depends on your reporting framework. Confirm with your auditor.
WHICH ONE FITS
Each option has its moment.
None is always cheapest. The right choice depends on what you need the cash, the credit and the asset for.
CAPEXO
Choose a lease when
Cash is better spent on growth than on assets
You want bank lines free for working capital
The asset will need upgrading in a few years
You want predictable monthly costs
Buy outright when
You have surplus cash with no better use
You'll use the asset well beyond its useful life
Resale value is high and predictable
Ownership matters for operational reasons
Take a term loan when
You want to own the asset in the end
You can fund the margin money
Your bank lines have plenty of headroom
You can absorb the added debt on your ratios
RUN YOUR NUMBERS
See what it means for your cash flow.
Enter the asset cost, tenure and your borrowing rate. The calculator compares month-one cash, total outflow and monthly cost for each option.
Not sure which way to go?
Share the asset and your numbers. A leasing specialist will walk you through all three options.