Equipment Lease To Own Agreement; The Pros And Cons

There are many pros and cons to financing equipment through a lease to own agreement. Some of the pros and cons are highlighted below.

lease to own agreementWith the tight credit market and strict down payment requirements, lease to own agreements have become very popular among business owners. Business owners are taking a harder look at lease to own options and prospects would rather commit to a multi-year lease with a future option to buy the equipment.

In other words, they have an option of purchasing or not. If the value of the equipment plummets, you can remain a lessee until the agreement expires. If the value of the equipment increases, on the other hand, then the monthly payments that you make each month will count toward purchase of the equipment within the agree-upon time.

Here’s how it works. Instead of purchasing the equipment outright, you draw up a contract with an equipment leasing company in which the monthly lease payments, based on the value of the equipment, count toward an eventual sale. The date when your contract expires depends on the type of contract that you signed but it is typically between two to five years. At that point, you can purchase the equipment at $1, fair market value or 10% of the original price.

Pros And Cons Of Equipment Lease To Own Agreement


If you have a damaged credit score, it would be nearly impossible to get a loan from a bank or any other similar institution. Many leasing companies have programs designed for business owners who have damaged credit. Once you sign a lease to own agreement with your respective leasing company, you will have the opportunity to rehabilitate your credit score while still building equity.

If you are a start up, you might find it difficult to secure a loan. As mentioned earlier, banks are very picky on whom they give out loans to and they might be bias towards start ups. Part of the reason why they might not give you a loan is due to the fact that many start ups usually fail within the first year, depending on the type of business. Securing a loan might therefore be a little tricky. You might want to consider a lease to own agreement because you won’t need credit approval or make a down payment.

You do not have to worry about credit damage. This is because even if your business fails, you will still have to pay for the monthly lease payments but this will not have an impact on your credit score. If you take a loan from a bank, on the other hand, and you are unable to repay your loan, you might have to file for bankruptcy to have the interest rate reduced. This would have a big impact on your credit score.


Chances of not making a purchase at the end of the lease to own agreement are very high especially if you grossly underestimated the total cost of purchase. Before you enter into a lease to own contract, you have to be sure that your finances are in order such that you can buy the equipment after two to five years or at the end of your lease agreement. Be realistic about the kind of buyout option you qualify for at the end of the lease period. Otherwise, you will simply have wasted your money and your time.

Summary For An Equipment Lease To Own Agreement

There is a great demand of lease to own agreements given the numerous benefits they come with but there are also pitfalls. As a lessee, you are required to be careful about the terms of your agreement especially if the terms allow the leasing company to terminate the contract. These terms may include late payments, maintenance of the property or other individual clauses. If the lessor finds another lessee who is willing to lease equipment at a better rate, then they may decide to renege.

It is advised that you look for a reputable leasing company and a good attorney who specializes in leasing. The incentive for the leasing company to cancel your lease if they are approached by a prospect willing to pay a higher price can increase quickly so an attorney might help identify such loopholes in your contract.

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