Equipment loan calculator

The equipment finance agreement

The OCC’s Comptroller’s Handbook describes it as “a single loan document to finance the purchase of equipment with a security interest on the equipment under the Uniform Commercial Code”.

Unlike a direct financing lease, where the lessor keeps title, the handbook says “the borrower in an EFA is considered the owner of the equipment for both financial reporting and tax purposes and can retain the equipment at the end of term without having to pay a purchase option price”. So this route is a loan, and the column above treats it as one.

The one dollar buyout lease

The same handbook describes the variation in which “the lessee has the option to pay the lessor a nominal price, such as $1 at the end of the lease” to keep the machine, and calls that structure the functional equivalent of a loan. That is why the tool folds the one dollar into the cash to own line rather than asking you for it.

The fair market value lease

Here the lessor stays the owner. The handbook notes that in an operating lease the lessor, “as owner of the property, retains legal title” and keeps the rights to whatever the machine is worth at the end. Your end of term price is not settled in advance, which is exactly why this column asks you for the figure you were quoted instead of producing one.

The Code looks at substance, not the label

Under Uniform Commercial Code section 1-203, whether a transaction in the form of a lease creates a lease or a security interest “is determined by the facts of each case”. What the paperwork calls itself does not settle it.

The section then sets a two part test, and both halves have to be true. The consideration the lessee pays must be “an obligation for the term of the lease and is not subject to termination by the lessee”. Then one of four further conditions must hold, one of which is that “the lessee has an option to become the owner of the goods for no additional consideration or for nominal additional consideration”.

What counts as nominal

The same section says additional consideration “is nominal if it is less than the lessee’s reasonably predictable cost of performing under the lease agreement if the option is not exercised”. It also says a price is not nominal when it “is stated to be the fair market value of the goods determined at the time the option is to be performed”. That is the line between the two lease columns above, in the Code’s own words.

What a lease is, and what a finance lease is

Article 2A defines a lease as “a transfer of the right to possession and use of goods for a term in return for consideration”. It defines a finance lease as one where “the lessor does not select, manufacture, or supply the goods” and acquires them in connection with the lease. None of this is a determination about your paperwork, and this page makes none.

Why a machine with no plate is treated differently

IRS Publication 946 sets out limits it calls “the maximum depreciation amounts you can deduct for a passenger automobile”, and defines a passenger automobile by wheel count, by being made primarily for use on public streets, roads and highways, and by weight. A machine that is none of those things falls outside that definition, which is the single reason this page exists apart from the commercial vehicle calculator. That is a statement about the definition, not about your deduction.

What we do not tell you

No dollar limit, no tax year, and no conclusion about eligibility appears anywhere on this page. The after tax panel multiplies a deduction you entered by a marginal rate you entered, and stays hidden until you supply both.

Why compare cash outlay instead of interest rates

Because a lease payment does not carry a stated rate. The lessor sets an implicit rate through a money factor you were probably never shown, and it cannot be recovered from the payment alone. Cash to own is a figure both sides can check, so that is what this page compares.

I only have one quote so far

Fill in the column you have. The tool prices whatever it can and stays silent about the rest. The three way comparison appears once two routes have enough figures to compare.

What if I leave the fair market value buyout empty

That column reports what it costs to hand the machine back and then drops out of the comparison. It will not guess a residual, because a residual is the lessor’s estimate of what the machine will be worth years from now and no calculator can supply it for you.

Does a longer term make the machine cheaper

No. It makes the payment smaller. The term table recomputes the payment, the total interest and the total of payments across your term and your term plus or minus 12 and 24 months. The monthly figure falls and the interest rises.

Where the numbers come from

Every payment, total and schedule row on this page is recomputed in code from figures you typed, by one shared amortization function the whole site uses, and the schedule reconciles to its own summary. Each printed row is rounded to the cent for display, so adding the printed rows by hand can land a cent away from the printed total. The only external number anywhere here is the published Prime Rate, fetched from the Federal Reserve H.15 release and cross-checked against the federal funds target before it is shown. If it cannot be verified it is held, and the benchmark paragraph does not appear at all.

Who built it

I built the calculators on this site from the ground up, including the in-browser tools that print their own month by month schedule and reconcile every row back to the summary. I added this one after realising that the three quotes a business gets on the same machine are not comparable as monthly payments at all. I am Michal Lip.