Equipment Lease Vs Loan
Equipment Lease Vs Loan

Equipment Leasing vs. Financing 

There are many ways to acquire heavy equipment, whether replacing an existing machine or expanding your fleet for a specific project.  

Two popular options for acquiring heavy equipment are financing and leasing heavy equipment. Financing allows you to pay for the equipment over time, while leasing allows you to pay a flat monthly fee to use the equipment for a specific period. Equipment financing and leasing can provide benefits, but one is a better fit for your business.

Estimated read time: 6 minutes


Equipment leasing consists of an agreement or contract with a lessor. A financial institution, like Cat Financial, retains ownership of the equipment but allows you to borrow it for a specific period in return for a monthly payment. Payment amounts are fixed, or the same, each month. And you’re free to use the equipment until the lease termination date. In most cases, qualified customers can extend the lease, return the machine, or purchase it when the lease ends.

Alternatively, equipment financing involves borrowing money to pay for equipment over a negotiated timeframe. With an equipment loan, you usually pay a fixed monthly amount, including the machine cost plus any interest and additional fees. The monthly payment depends on the down payment upfront – the greater the down payment, the lower the monthly payments. You will own the equipment once all payments outlined in your loan have been completed.

Critical differences between equipment financing and leasing:

  • Monthly payment type: You can pay a fixed monthly fee with an equipment lease. But in a financing agreement, companies pay a portion of the overall price and interest.

  • Monthly payment amount: Financing agreements can have higher monthly payments than leases because you pay fees and interest.

  • Equipment Ownership: Once a lease term is complete, the equipment returns to the lessor unless you purchase it. In contrast, financing allows you to own the machinery once it's paid in full.


Diving deeper into equipment financing versus leasing can help you make a more informed decision about which option is best for you and your business.

Financing Cat equipment could be an excellent option for your business if you are interested in preserving cash flow and paying over time. Cat Financial can offer competitive rates and flexibility that other financial institutions may not.

Reasons to finance a Cat® machine: 

  • Spread out the financial obligation: Financing equipment allows you to spread out the total cost over a more extended period. Instead of making a large payment all at once, you can make smaller payments across months or years, otherwise known as paying in installments. Personalized payment schedules can be implemented for qualified customers.

  • Multiple financing options: There are typically numerous financing options available for companies. The various options can feature different interest rates or monthly sums. You can work with the financing firm to select the best plan for your needs. For instance, dependable finance companies like Cat® Financial offer various financing options.

  • Acquire multiple machines at once: Financing is a great way to get multiple pieces of equipment simultaneously. You can invest significantly to grow your business and take on more work by paying for equipment over time rather than in total upfront. 

  • Special Offers: Cat Financial typically offers special financing rates for new and used Cat equipment. These limited-time offers can help you save on interest. Contact your local Cat dealer to see what offers are available in your area.

Financing with Cat Financial


Financing Cat equipment can present many advantages to your business. Here are a few examples:

1. Build Equity with Ownership

One of the most significant benefits of equipment financing is that you can build equity through equipment ownership. Once the machine is paid in full, you will own the equipment and have the option to resell it. 

When you own equipment, you have it for as long as it’s needed. Plus, your monthly payments contribute to the purchase price.


2. Manage cashflow

Financing can also help you better manage cash flow. Stay within your budget by separating the total equipment cost into smaller monthly payments. We understand that running a business involves ongoing expenses, from staff budgets to bids for new projects. It's also essential to have enough capital available for periods of downtown, emergency expenses, or anything else that could arise.


3. Captive Finance Companies Provide Great Flexibility

Choosing a captive finance company can also benefit your company. For example, Cat Financial can create a tailored solution for your equipment purchase and these benefits:

  • Equipment expertise: The Cat Financial team understands the equipment you need to get the job done. Plus, we know your industry's challenges and seasonal shifts, which is why we develop all of our financial solutions specifically for Cat customers. 

  • Personalized solutions: Instead of managing your payments through a third party, your entire transaction is housed by Cat Financial. We know that every business's financial needs are different, and we work hard to help you find the best solution. 

  • Ongoing support: We understand unexpected events happen, whether it's a global pandemic, economic downturn, or natural disaster. And when these happen and impact our customers, we’re here to offer support to get you through it. 

Benefits of financing equipment


With an equipment lease, you can use equipment to the fullest for a certain amount of time, typically three years. Once the lease ends, qualified customers can purchase the machine, return it, or extend the lease. 

Here are more great reasons to lease heavy equipment:

  • Short-Term Equipment Needs: You might have a project requiring a particular equipment type. In this case, you might want to invest less in new equipment. By leasing the equipment instead, you can use it for the project without committing to an entire purchase. 

  • Budget limitations: Leases are also solid options for limited budgets. If you don't have the means to commit to financing or upfront investment, you can lease machinery instead. That way, you can still meet deadlines and complete projects without overspending and taking risks with equipment ownership. Plus, monthly lease payments are often less than financing because you typically don't have to pay interest.

  • Use the latest equipment: Leasing allows you to try newer equipment and technology without committing to a purchase. Leasing typically provides you with the latest model of equipment. 

  • Purchase Option: One of the best aspects of leasing is trying out equipment without investing. You can test the machinery's capabilities and see if they fit your job site and business operations. If you reach your lease's end and decide the equipment wasn't a good fit, you can easily return it. Or, if you want to invest in the equipment, your lease provider can help qualified customers purchase the machine. It's a great way to ensure the equipment suits your needs before fitting it into your budget.


Leased equipment is beneficial for multiple reasons, including:

1. Good for Short-Term Needs

Leases can accommodate short-term projects and needs. An upcoming project might need machinery your company doesn't own or have available in the equipment fleet. Instead of investing, you can lease the machine for the project's duration. That way, you stay within your budget and complete the job. You don't have to invest in equipment you only plan to use once.


2. Lower Budget Impact 

Leasing can also have a lower impact on your company's budget. A lease involves a fixed monthly payment, often lower than financing payments. You may not have to pay extra interest fees each month or make a down payment at the time of purchase. Some lessors like Cat Financial offer 100% financing for qualified customers, which includes coverage for delivery fees and other taxes. With 100% financing, you avoid down payments or additional upfront costs.

With less financial responsibility each month, you have more control over your available credit. You can use the additional capital for other business needs. And you can plan your monthly expenses more efficiently with a consistent monthly payment amount. Overall, leasing allows you to get new equipment with a minimal financial impact on your business.


3. Try New Equipment Features and Technology

Another advantage of leases is testing the latest equipment features and technology. Lessors typically supply a wide variety of equipment options, including newer models with the latest technology. Thus, allowing you to try it before you buy it. 


4. Flexible Payment Options

Lastly, leases for heavy equipment are available in many different options. Financial firms offer a variety of payment structures, from monthly to semi-annually. You can work with your provider to find the right payment amount and schedule for your company. Leases are also typically quicker to set up than financing agreements, making it easier to get started with the equipment.

If your schedule changes and you finish with the equipment earlier than expected, many lease providers can also help you complete your financial obligations early.

Cat Financial offers three options to qualified customers at the lease end:

  1. Return the equipment
  2. Extend your lease
  3. Purchase the machine
Benefits of leasing


Another leasing option is a lease to own. For Cat Financial, this is our finance lease. With finance leases, you make regular payments on equipment over a specific time. The financial institution retains equipment ownership until you have completed all payments, then ownership transfers.

Leasing to own is an excellent choice for companies that want to own the equipment. You can maintain a monthly payment while deciding whether the machinery meets your needs. This option also makes it easier to purchase heavy equipment that is out of your budget.

A lease-to-own structure usually follows four steps:

  1. You enter a lease agreement with the option of purchasing the equipment once the lease ends.

  2. The lessor calculates a percentage of each payment that will contribute to the overall purchase price.

  3. Once the lease ends and all payments are satisfied, you can pay the remaining balance to gain complete ownership.

  4. If you fail to make the payments, you forfeit the equipment to the lessor.

This structure can sometimes cause you to pay a higher overall equipment cost. Companies should ensure they will have the means to pay the leftover balance once the lease ends. If not, they'll have to return the equipment.

Lease to own


An alternative to leasing and financing is buying equipment directly with cash. If you have enough to cover the total cost of the machinery, you can pay for it upfront in a single payment.

Benefits of paying cash for heavy equipment:

  • Simple transaction: With a cash payment, you immediately complete the transaction with a seller. Your business pays the dealer, and equipment ownership transfers to you.

  • No added fees: When you pay cash, you typically don’t have to pay more than the purchase price of the equipment because there aren't additional fees included, like interest.

This option is ideal for businesses with a lot of capital because cash can run out and could cause you to overspend. If your business makes a large purchase with cash, it could be more challenging to afford other expenses. For instance, you might buy a large piece of equipment with cash. But if another project comes up and requires you to make another purchase, you might be able to cover the expenses once you save enough money.

Only using immediate cash can make purchasing multiple machines more difficult if capital is limited. Financing or leasing might be a more robust option if you want to acquire multiple machines at once. For instance, leasing and financing offer more flexibility and agility in the long term.

Purchasing with cash


Both equipment leasing and financing can present many benefits for your construction business.

If your company is deciding between financing or leasing equipment, there are a few things to consider:

  • Equipment cost: Consider what type of equipment you need and its total cost to own, run, and maintain. Then, compare the typical cost to your budget. You can work with leasing and financing firms to find a monthly price that meets your available funds. 

  • Equipment Versatility: Think about how essential the equipment is to your company. Is it a piece you need to use daily or something that will only suit a specific application? Some equipment can be outfitted with different attachments to make it more versatile. Considering that the equipment will become essential to your company's daily operations, consider a long-term option like financing. That way, you can eventually own the piece and use it regularly. But if you only need it for a short duration, a lease might suit your needs better.

  • Equipment Needs: Think about how often you plan on using the machinery. An investment is worth it if you know you'll use the equipment regularly. But a lease provides a shorter solution for equipment you might need for only one project.

  • Resell Opportunities: Consider your future financial goals. Many companies buy equipment to resell it later. Financing might be a better option if your goal is to recoup part of your initial investment. Once you own the equipment, you could use it regularly or resell it.

Choosing between financing and leasing depends on your business needs and financial flexibility. It's essential to find the right financial institution that understands the unique needs of your business.

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