Checklist for Disadvantages with Asset Leasing

  • The effect of the interest rate is higher than for other types of borrowings.

  • Because you can borrow 100% financing it is easier to become over committed.

  • Leasing is really a form of long term rental without any ownership on your part. At the end of the lease period you have no greater equity than at the start of the leasing agreement.

  • You can face further payments if goods cannot be sold for the residual value at the end of the leasing period. (This means that you need to maintain the goods and look after them to ensure they have a good value at the end of the lease term).

  • You are basically locked in for a fixed term except for the option to purchase.

  • The payments add up to a greater total over the long term.

  • Leasing will usually cost you more because you lose certain tax advantages that go with ownership. The greater one is that you are paying a higher interest rate.

  • Never forget that a lease is a long term legal obligation. This means that you cannot cancel a lease agreement. If you were to end the operation that used the lease equipment you will still find yourself having to pay as much as if you had used the equipment for the full term.

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