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Equipment Payments

Equipment finance vs. cash calculator

Decide whether to finance equipment or pay cash, the honest way. Paying cash is not free: that money stops earning the moment you spend it. Financing costs interest. Enter the price, the loan rate, and what your cash could earn instead, and see which choice leaves you with more money at the end of the term.

§ 01 Your numbers

Change anything. The answer updates as you type.

The purchase price, the same whichever way you pay.
The financing rate from your quote. This is what financing costs you.
How long you would finance, and the period over which the comparison runs.
The return you would get keeping the cash instead: a savings or money-market rate, or your own return on capital in the business. This is what paying cash costs you.
The cheaper path saves
$2,460
  • Pay cash: the payments you invest instead grow to$32,982
  • Finance: your kept cash grows to$30,522
  • Paying cash leaves you ahead by$2,460
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One path is $1,000 to $5,000 ahead over the term. Follow the arithmetic unless keeping or spending the cash matters more to your cash flow than the gap.

What this assumes, and where it could be wrong

Every one of these is a place the number could be off. They are here because you should be able to check our working, not because we are hedging.

PAYING CASH IS NOT FREE; IT COSTS THE RETURN THE MONEY WOULD HAVE EARNED.
The instinct is that cash avoids interest and is therefore cheaper. But the money you hand over stops working: it could have sat in a business account, paid down other debt, or funded work that earns a return. That forgone return is the real cost of paying cash. Run both choices to the end of the term, with the equipment owned either way, and compare the money left over: that is what the calculator does, and it reduces to a simple rule
THE RULE IS: FINANCE IF YOUR MONEY EARNS MORE THAN THE LOAN COSTS.
Once you compare where you actually end up, the answer is just the two rates. If the return your cash can earn is higher than the loan rate, financing leaves you with more, because the money working for you outpaces the interest. If your cash earns less than the loan costs, paying cash wins. The obvious comparison, loan interest against the return on the whole price sitting still, is wrong, because financing draws that cash down with the payments

This compares cost only, and cash flow can outrank it. Financing keeps your working capital, which for a business is often worth more than a small saving either way, because running out of cash is what kills companies, not paying a few points of interest. If the cash is your buffer, lean toward financing even when the arithmetic is close.

The cash return is your number, and be realistic about it. A savings rate is a floor; your real alternative return might be paying off a higher-rate debt or funding work that earns more. Use the return you would genuinely get, not an optimistic one, because an inflated cash-return figure makes financing look better than it is.

Tax can tilt it and is not here. Interest on an equipment loan is usually deductible, and so is depreciation whether you finance or pay cash, but the timing differs. For a large purchase the after-tax comparison can differ from this pre-tax one; take it to an accountant.

Frequently asked questions

Should I finance equipment or pay cash?
Compare the loan rate to what your cash can earn. If the money you would spend can earn more elsewhere, in the business or paying down higher-rate debt, than the loan costs, financing leaves you with more at the end. If your cash earns less than the loan rate, paying cash wins. The calculator runs both paths and shows the side money each way.
Is it cheaper to pay cash for equipment?
Only if your cash earns less than the loan costs. Paying cash is not free, because spending it forgoes whatever return that money would have earned. When your alternative use of the cash earns more than the loan rate, financing is cheaper despite the interest; when it earns less, cash is. The interest you avoid is only half the picture; the return you give up is the other half.
Why would I finance if I have the cash?
To keep your working capital, and because the loan can leave you better off when your cash earns more than it costs. A business that ties up its cash in equipment can be caught short when payroll or a slow month arrives, and running out of cash is more dangerous than paying interest. Financing at a rate below your return on capital is cheaper and safer at once.
What is the simple rule for financing versus cash?
Finance if your money can earn more than the loan rate; pay cash if it cannot. It sounds too simple, but once you run both choices to the end of the term, with the equipment owned either way, the decision reduces to exactly that rate comparison. The tempting shortcut of loan interest against the return on the full price is wrong, because financing spends that cash down over the term.

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