To Buy Or Not To Buy?
In some computer circles, the word "lease" conjures up the industry's dark ages--the mid-1960s, when many users couldn't afford to buy mainframes. Now, corporate leasing is on the upswing again. And today's leases come with sweeteners, such as no-money-down terms.
For home PC users, leasing offers few advantages, tax or otherwise. For example, a three-year lease for a Dell Computer Corp. Dimension XPS D300 with a 300-Mhz Pentium II will set you back $4,320, a 27% premium (or $921) over the purchase price. And after three years, you will still need a computer.
Leasing may make more sense for businesses. But first, consider your cost of money vs. the premium you'll pay for a lease. Then, estimate the life of the computers. With tech's fast pace, they could be obsolete in three years.
With a lease, you're borrowing the purchase price and spreading it over the life of the contract. If your company's borrowing costs are 15% or higher, there are much cheaper terms available from leasing specialists such as Comdisco Inc., Newcourt Credit Group Inc., or from equipment vendors. Lease a server from Micron Electronics Inc., for instance, and you'll pay just a 7.5% annual premium over the purchase price.
Also, think about time savings. Instead of taking months to negotiate a loan, you can jump-start a project instantly under a lease. In the current rush to build market share, PC makers are simplifying lease terms and speeding up approvals.
Leasing seems particularly smart if you need the latest Laptops, which are hard to upgrade. That's why Eli Lilly & Co. leases portables for its salesforce. For smaller companies, there also may be tax advantages, such as expensing lease charges rather than using depreciation schedules. Your accountant should know if your business would benefit.
Finally, the arrival of newcomers to the leasing game, such as Dell and Compaq, is bringing fresh bennies. The annual premium for Dell's three-year desktop lease is 10% of the list price. Compaq is offering one-time deals on Laptops and free add-ons such as 16 megabytes of memory. Leasing, in short, isn't retro. In fact, it could keep you in the technology fast lane.