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A Complete Guide to Forklift Leasing and Buying Options

When you need to acquire a key piece of materials handling equipment, it can be challenging to weigh various forklift leasing options against the benefits of purchasing outright. It is a decision that hinges on both financial and operational factors.

And while there is no shortage of conventional wisdom supporting one option over the other based on a company’s financial picture and its plans for how the forklift equipment will be used, there is also no cut-and-dried formula for answering the lease-versus-buy question.

Companies with lighter workloads are sometimes encouraged to buy their materials handling equipment rather than lease; but so are large, profitable companies that have plenty of access to capital.

To figure out what is best for your company, it is wise to seek input both from your accountant and also from the forklift dealer, who can provide detailed quotes on the financial benefits of leasing versus buying a particular lift truck.

Leasing

Forklift leasing can present an opportunity to use the newest state-of-the-art equipment with little or no cash upfront while enjoying the benefit of a predetermined replacement cycle, avoiding the responsibility of ownership and paying only for what you use.

The decision to lease your materials handling equipment can make it easier to put in place a forklift fleet with the latest in safety and technology. It can give you more financial flexibility to adapt or grow your fleet as the needs of your business evolve. Large companies that are continually expanding tend to lease their materials handling equipment because preserving access to capital is crucial as they grow.

A trend in the industry is toward forklift leases with guaranteed service contracts. This gives the company a fixed monthly cost that is easy to budget for because the equipment will be covered by warranty as long as it is operated within specified usage and properly maintained.

There are generally several different types of forklift leasing options:

  • A fair market value lease (also called a residual lease or operating lease) generally will have the lowest payments. But if you plan to keep the equipment at the end of the lease, you must pay its fair market value so this can be more expensive in the long run.
  • A full payout lease (also sometimes called a dollar buyout lease or capital lease) comes with higher payments, but you’ll own the equipment at the end of the lease term.
  • A full service lease works somewhat like a long-term rental in that you make a monthly payment and the forklift provider is responsible for reliability and repairs.

The monthly payment is typically reduced as you lengthen the duration of the lease. So consider a longer lease if it is important to keep the payment as low as possible. But take care not to extend it past the point where the benefits of a smaller payment are canceled out by increased costs for maintenance.

Ownership

Of course, there are tangible benefits to ownership as well. Your accountant can help you calculate whether the ability to claim deductions for depreciation and interest on a forklift purchase will end up delivering a net savings at tax time.

One advantage to buying is that many forklift lease agreements place limits on hours of usage (for example, 2,000 hours annually, approximately 40 hours per week) and can therefore end up costing extra, whereas buying the lift truck outright relieves the owner of such limitations on the workload.

Some providers suggest that buying may make the most sense for a business that has lighter forklift usage and therefore expects a longer equipment life. One general scenario in which buying might be preferred would be when your company’s forklift usage is limited (perhaps less than 1,000 hours per year) and you can expect to operate the equipment for seven to 10-plus years while keeping maintenance expenses under control.

Of course, many firms of all sizes find it difficult to put a price on the peace of mind and pride of ownership that comes with purchasing new. And bigger, busier companies are often swayed by the tax advantages.

But such decisions really come down to crunching the numbers. Requesting quotes for two or more lease term options can help you determine when rising maintenance costs begin to offset the benefit of a longer-term lease.

Quality forklift dealers will be equipped to help you understand both the operational and financial sides of the equation. So be sure to ask for detailed price quotes that provide the information you need to determine whether leasing or buying is best for your company.

Our forklift experts at Northland Industrial Truck Co., better known throughout New England as NITCO, are skilled at helping you figure out whether a forklift lease or purchase is best for your business. Contact us today for friendly, straightforward advice that is customized to your specific needs.

 

10 Questions You Need to Ask Before You Buy a Forklift
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10 Questions You Need to Ask Before You Buy a Forklift

Asking the right questions will help you select the right equipment to get the job done. We created this free eBook packed with valuable information to help you make a more informed decision.

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