A Marysville, OH shop that wants to own its equipment at the end can compare a loan with a $1 buyout lease. A fair market value lease carries the smallest payment in the worked example and suits gear the shop expects to return or upgrade. Judge dealer plans on total cost too. Rate, term and structure on a real offer are a funding partner's to set.
In the worked example the fair market value lease has the smallest payment, the loan the smallest total for a shop that keeps the equipment, and the $1 buyout lease the highest payment. Tax treatment differs by structure and is a question for the shop's accountant. A dealer plan is worth comparing on total cost, not only on the payment.
Owning at the end vs returning or upgrading
The first question is what the shop wants at the end of the term. Equipment that will still earn its keep in ten years, such as a lift, points toward owning it: a loan, or a lease with a $1 buyout. Equipment that goes out of date sooner, such as diagnostic computers, points toward a lease the shop can hand back or trade up when the term ends. A shop that is unsure can price both: the gap between the two totals is what owning costs, and the shop decides whether the equipment is worth that much once the last payment clears.
An equipment financing agreement of either kind is secured by the equipment, and the difference sits in three places: who owns it during the term, what the shop pays each month, and what happens on the last day.
- Loan: title sits with the shop on day one, with a lien recorded against it until the final payment clears
- $1 buyout lease: the lessor owns it during the term and the shop buys it for $1 at the end
- Fair market value lease: the shop returns it, renews, or buys it at its value when the term ends
- Dealer plan: any of the three, arranged through the seller
Fair market value, $1 buyout and loan payments side by side
Illustration only, invented figures: a shop prices an equipment package at $41,200: two lifts, a refrigerant recovery machine and a parts washer. It has three offers over 48 months. The fair market value lease runs $812 a month, with an estimated $11,800 to buy the equipment at the end. The $1 buyout lease is priced at 12.8%. The loan needs 10% down ($4,120) and finances $37,080 at 10.5%.
| Option | Paid up front | Monthly payment | Total paid |
|---|---|---|---|
| Fair market value lease, equipment returned | $0 | $812 | $38,976 |
| Fair market value lease, equipment bought at the end | $0 | $812 | $50,776 |
| $1 buyout lease | $0 | $1,101.21 | $52,859.08 |
| Loan, 10% down | $4,120 | $949.37 | $49,689.76 |
In this example the fair market value lease has the smallest monthly payment, and returning the equipment the smallest total, $38,976, but the shop then owns nothing. For a shop that keeps the equipment, the loan costs the least in total, $49,689.76, against $52,859.08 for the $1 buyout lease and $50,776 for buying out the fair market value lease. The fair market value buyout figure is an estimate; the real price is set when the term ends.
Tax treatment questions for an accountant
How each structure is treated for taxes, and how it shows on the books, is not something this site decides. The shop's accountant does. Questions worth taking to that meeting, with the quotes in hand:
- Are lease payments on this agreement deducted as an expense, or is the equipment depreciated?
- Does a $1 buyout lease count as a purchase for tax purposes?
- How does each option change the balance sheet a funding partner will read later?
- Does the timing of the purchase within the tax year matter for this shop?
- What records should be kept for the equipment from the first day?
The answers can change which option comes out ahead after taxes, so the totals in the table are a starting point, not a verdict.
Dealer plans and when outside financing beats them
A dealer plan is convenient: one signature at the counter, and sometimes a promotional rate. It can also cost more than outside financing when the rate is higher or the term shorter.
Illustration only, invented figures: the dealer offers the same $41,200 package at 13.4% over 36 months with nothing down, $1,396.14 a month. In this example that plan totals $50,261.04, which is $571.28 more than the outside loan above, and its payment is $446.77 a month higher.
Outside financing, such as a business term loan or an equipment loan through a funding partner, comes out ahead when it lowers the total; a dealer plan comes out ahead when a promotional rate is low enough to beat it. Comparing them needs the same price, the same term and every fee written down.
In ZIP 43040, Other Services (except Public Administration), the Census sector that holds auto repair, counted 84 establishments in the 2023 ZIP Code Business Patterns, with 60.7% of them under five employees. The auto repair page covers the machines those shops buy, and the articles page has the equipment-cost posts.
By Reedshore Credit · Updated
