Economic conditions and market uncertainties have big impacts on whether it’s the right time to add equipment to your fleet. If now is a good time, you then need to consider whether renting, leasing or buying is the best option. And what about new or used equipment? Special financing rates can make buying new attractive, but using rentals or leases to supplement an owned fleet can be a smart strategy, too. And if you’re thinking now is a good time to invest in a piece of used equipment, the certified machines in our used inventory are serviced to extend machine life and lower your operating costs.
So which is the best option for you? There’s really no right or wrong answer — it depends on your unique situation. To help you understand your options, we’ve laid out some pros and cons of renting, leasing and purchasing your next new or used machine.
Renting is typically most popular for shorter term needs (months or weeks). Also, smaller companies may not own many pieces of equipment, and therefore may rent more often. If you’re interested in renting, you’ll want to keep machine availability in mind. The more standard a machine is the more likely it will be available for rent, whereas specialty equipment is typically more difficult to find and rent for short terms.
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Leasing adds a blend into the total ownership/use mix of your fleet, which most companies like. Leasing is more flexible than buying, but less flexible than renting — you have to commit to a period (usually 24 to 60 months). Typically, companies that have access to their own source of capital choose to buy rather than lease.
Most equipment can be leased, but the more specialized a piece of equipment is, the higher the relative cost of leasing becomes. This is because the party leasing the equipment may not have a big enough secondary market to sell the unit upon its return. Cost of equipment can also play a role, as more expensive equipment ties up more capital.
Currently, the number of leases relative to the amount of transactions (lease, finance purchase and cash purchase) is down significantly from 2018. Previously, lease payments may be incurred on the profit and loss (P&L) statement and may not affect a customer’s balance sheet. However, due to changes in International Financial Reporting Standards (IFRS) and U.S. Generally Accepted Account Principles (GAAP), leased machines may now need to be added to the balance sheet and depreciated over the period of the lease, as would a financed machine or a machine purchased outright (rentals may not need to go through the balance sheet). Be sure to check with your tax advisor before making these decisions.
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A note on leasing: We’re always looking for ways to help customers get the machines they need to get jobs done while better managing their costs. That’s why right now we’re offering a one-of-a-kind all-inclusive lease on electric equipment. If you’ve ever considered integrating a compact electric excavator or loader into your equipment lineup, but you’re still a little skeptical about the best way to do it, this one-of-a-kind lease is a great way to make it happen.
Some companies prefer to buy equipment as it’s part of their long-term capital strategy (that’s also sometimes true with leasing, but not rentals because they’re not building equity by renting). And recently, owner operators have trended more toward buying versus leasing. When buying, opt for bundled services, such as an extended warranty and a service agreement, to ensure your equipment is properly maintained. Today, there are monitoring services like Volvo’s ActiveCare Direct® that monitor equipment functions and alert owners and/or dealers of any major issues. These services are available for leases as well.
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When you’re in need of a new machine, Volvo Construction Equipment and Volvo Financial Services partner to help you find the best financial option for your specific situation. Many contractors can get into the habit of leases only, which doesn’t always make good financial sense. Through our extensive dealer network, we provide a broad range of options and pride ourselves on being very flexible at tailoring programs that work specifically for you.
By Agako Nouch, Vice President, Sales, and Ryan Sherwood, Vice President, Retail Development