Lease vs. buy calculator for tractors and combines
A lease payment is usually lower than a loan payment, but that doesn't make leasing cheaper. To compare them fairly, you count every dollar each option costs, give the buyer credit for what the machine is worth at the end, and convert everything to today's dollars.
Compare the two
How the comparison works
Buying: the down payment today, plus each loan payment, minus what the machine is worth when the lease would have ended. Leasing: each lease payment, plus the buyout if you choose to buy the machine at the end (in that case you also get credit for its value, the same as the buyer).
Every payment is then discounted back to today at your discount rate:
value today = payment ÷ (1 + discount rate)years from now
This matters because the two options spend money on different schedules. The buyer pays heavily up front and gets money back at the end. The lessee pays evenly. Adding up raw dollars would ignore when each dollar gets spent.
Reading the example
A $240,000 tractor bought with 10% down and a 5-year loan at 7% costs about $287,000 in payments. A 5-year lease at $26,500 a year costs $132,500. The buyer then owns a tractor worth about $135,000, which is roughly $101,000 in today's dollars at a 6% discount rate. Even with that credit, leasing comes out about $27,000 cheaper in today's dollars. Raise the resale value to $175,000 and buying wins by about $3,000. The answer usually depends on what you think the machine will be worth at the end, so try a pessimistic number as well as an optimistic one.
Tracking several of these at once? The free farm bill due-date tracker keeps them in date order.
When each one tends to win
- Buying tends to win when you keep machines a long time, don't put on many hours, and the model holds its value.
- Leasing tends to win when you trade often, want the newest technology under warranty, or would rather keep cash and credit free for land or inputs.
- Over the lease's hour limit, leasing usually loses. Add the expected overage charge to the lease payments before you compare.
Questions people ask
What is a fair discount rate to use?
Use what your money would otherwise earn or cost. If the cash would pay down the operating line, use the line's rate. If it would sit in savings, use the savings rate. Most people land between 5% and 8%. Try a couple of rates and see whether the answer changes.
Why does resale value matter so much?
When you buy, you still own the machine at the end, and that's worth money. When you lease, you hand it back. A machine that holds its value well tilts the answer toward buying, while one that loses value fast, or that you'd wear hard, tilts it toward leasing.
What does 'payments in advance' mean?
Most equipment leases take the first payment when you sign, and each later payment at the start of its year. Paying earlier costs a little more in today's dollars. Choose 'in arrears' only if your lease bills at the end of each period.
Are taxes included?
No. Lease payments are generally deducted as an expense. A purchase is depreciated, and Section 179 or bonus depreciation can front-load that deduction. Those rules can change the answer by thousands of dollars, so run the after-tax numbers with your tax preparer.
What else should I check in a lease?
Annual hour limits and the charge per hour over the limit, who pays for repairs, the buyout price at the end, and what counts as excess wear when you return it. If you go over on hours, the extra charges can wipe out whatever leasing saved you.
Related tools
Not financial advice. These calculators give estimates from the numbers you enter. Your lender's terms, fees, day-count method and tax situation can change the result. Check with your lender or advisor before you act. Full disclaimer.