Tractors can be a pricey investment. If your farm needs one, you may find yourself torn between buying a new tractor for sale or leasing one. There are pros and cons to both options,.and taking the time to learn about these pros and cons can help you make an informed decision as to which option is the better option for your business. Here are a couple of the pros and cons associated with buying a new tractor for sale versus leasing one.
The Cons of Buying a New Tractor Compared to Leasing One
- The Costs Can Be Higher
One of the downsides associated with buying a new tractor versus leasing one is that the costs can be higher. As a general rule of thumb, you have to put lease money down to lease a tractor, and your monthly payments are cheaper with a lease compared to buying the equipment outright. If money is tight right now, leasing may make more sense in the short term, as it frees up more of your cash for other expenses.
- You Take a Depreciation Hit
The other disadvantage to buying a new tractor is that you are stuck with that one piece of equipment for some time. Just like when you buy a new car, you take a depreciation hit on a tractor when you buy it brand new. As such, it may take several years for you to hit a point where you are not upside down on the deal.
If you don't plan on keeping the tractor for long, or prefer the newest model of tractor, buying a tractor may not make much sense as you have to absorb this depreciation hit. In this case, leasing is the better choice.
The Pros of Buying a New Tractor Versus Leasing One
- You Gain Equity
One of the major benefits associated with buying a tractor instead of leasing one is that you gain equity in the tractor. Leasing is similar to renting a home. You are paying to use an item, but you don't own it and you aren't gaining equity.
Buying a tractor is like buying a home. You are paying off the tractor each time you make a payment, gaining equity in the item. If you want to be making payments toward something you own, buying a tractor may be a good choice for you.
- You Can Write Off Parts of the Tractor On Your Taxes
The other advantage associated with buying a tractor is that you can write off certain parts of the tractor when you purchase it. You can typically write off the interest and depreciation when you own a tractor.
The tax laws are a lot more complicated and gray when it comes to leases. As such, if consult with a tax professional to see exactly what tax benefits buying versus leasing has to offer you.
There are both pros and cons associated with buying a new tractor for sale compared to leasing one. However, if you want to gain equity as you make payments, plan to keep the tractor for a prolonged period of time and want the ability to part of the tractor off on your taxes, buying outright may be the better choice for your business.