Purchasing or leasing computer hardware - pros and cons
When it comes to acquiring new hardware for your business, finance is one of the key things you will have to consider. Typically, your options will be: buying outright, hire purchase or leasing.
Pros and cons of buying computer hardware outright
If you want to own the equipment outright, you can buy it in full with your own money or use a bank loan or overdraft to purchase it.
The advantages of buying outright include:
- having full ownership of the assets, which you can add to your balance sheet
- the ability to deduct or write off the value of the assets for tax purposes (in some cases)
- the ability to use or alter the equipment as you wish, since you're not tied into a contract or a leasing agreement
On the other hand, disadvantages to buying outright include:
- paying the full costs up front, which can cause cashflow pressures
- possibly having to source a loan to cover the costs
- having to maintain or repair the equipment yourself, which can be costly or impractical
- losing value over time - hardware depreciates quickly and may become obsolete after a few years, requiring a further investment
Read more about buying equipment outright.
Pros and cons of leasing
Leasing allows you to rent computer equipment for a monthly fee. You enter a contract with a leasing provider and, at the end of the agreed term, you typically either:
- give the equipment back
- extend the lease if you wish to keep using it
Depending on the leasing company, you may also agree to buy the assets at the end of the lease. Leasing has several distinct benefits. For example:
- it allows you to use assets without actually owning them
- it doesn't tie up your funds in an outright purchase
- it minimises maintenance costs, as the lender is typically responsible for any upkeep
- it is more flexible and makes it easier to upgrade your equipment
- it is considered an operating cost, so you can write it off against profits
Leasing may be worth considering if the equipment you need is likely to date quickly or if you are looking for a short-term commitment. However, leasing over long-term may not be cost-effective, as you may end up paying more than the equipment is worth.
Pros and cons of hire purchase
Hire purchase allows you to buy IT equipment on finance, using monthly payments rather than a lump sum. Typically, the payments cover the purchase price, as well as a fee for the lender. At the end of the agreed hire purchase term, you own the asset in full.
The advantages of hire purchase agreements include flexibility and scalability. They allow you to:
- spread fixed costs over time, which is easier on your cashflow than an upfront payment
- maximise your tax relief via capital allowances - seek accountant's advice
- have maintenance, repairs and servicing as a part of the deal
- enter into a new contract at the end of the original term to upgrade or replace equipment
As with other options, there are disadvantages to hire purchase. For example:
- the equipment's overall cost may be greater than if you'd purchased it outright
- there can also be more administration involved
- the equipment remains the property of the supplier until the final payment is settled
- by the time you pay off the equipment, it may be obsolete
When deciding if you should buy or lease your hardware equipment, it's important to take into account your needs around hardware installation, maintenance and support.