Proceed with Caution on a Computer Lease

Pay attention to the fine print and financials.

March 1, 2000

I'm often asked, Should I buy or lease my next computer?

Many businesspeople believe that magical leasing properties may make a computer more affordable or more advantageous for tax purposes. In reality, leasing a computer is typically the most expensive option. And it often makes for a confusing transaction.

The fine print

Although some leases are fairly straightforward, read the fine print carefully. To make the monthly payments seem more affordable, many leases feature significant downpayments or back-end fees—money you owe at the end of the lease, even if you surrender the computer at the end of the contract.

Even the simplest leases are slightly confusing in that they seldom mention the effective interest rate on the contract. Since leases aren't technically loans, the computer lender may tell you there's no interest charged. Although that's technically true, there's a cost for financing regardless of the descriptive label.

A quick visit to the Web site of a leading computer brand lets you calculate a typical lease payment. A $3,000, 36-month lease translates into about $112 each month.

Not bad you say? A few keystrokes on a financial calculator reveal that the cost of this financing is equivalent to paying an interest rate of 20.33 percent—not such a good deal after all. And at the end of the lease, you don't even own the computer.

Tax implications

If you're a broker-owner with substantial capital purchases each year, a lease may favorably affect your taxation. Consult your accountant.

Since the Internal Revenue Service allows businesses to write off equipment—without having to depreciate it—up to $20,000 for 2000 (more in subsequent years), leasing provides no tax benefit for the average computer user. Salespeople who acquire computers solely for business use are also eligible for the $20,000 deduction.

Contact your tax planner if you intend your computer for personal use as well, since the tax conditions are more complicated than for business use.

All told, the average purchaser is better off paying cash for a computer or financing it on a low-interest-rate credit card and then selling or donating the equipment to charity when it's outlived its useful life.

In addition to instructing GRI programs, Stephen Canale has spoken at hundreds of seminars in 45 states, covering subjects relating to real estate sales and technology. For more information on his products, newsletter, and seminars, visit www.canale.com.

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