Looking for a way to finance your next tractor purchase? With a lofty price tag, you may think a bigger, newer tractor is out of the budget, but a lease option may be your ticket to a more advanced and efficient tractor for a smaller monthly payment.
The concept of leasing equipment is similar to renting — pay for the value of the item over time, rather than pay for the piece of equipment itself. For example, if you were to lease a John Deere tractor, you would pay a fixed monthly rate and have the ability to use the tractor as your own. The only difference is you have the option to “buyout” or purchase the tractor at the end of the lease term for a reduced price.
Farm equipment leases can be used for most types of machinery at dealers, auction, or private sale and can be obtained through the dealer or other lenders. Regardless of what piece of equipment you want or where you get it from, it’s important to consider these factors when determining whether to lease or buy a tractor or other piece of farm equipment:
You know your operation best. While leasing a tractor can save money and provide a desirable cash flow, a tractor loan can be more beneficial to those looking to simply build equity. As long as you make an informed purchasing decision by considering term length, tax implications, and the other influential factors listed above and find a lease that suits your needs, leasing a tractor can be a remarkably smart investment.
For beginning farmers, it’s all about being strategic depending on the type of operation you’re looking to run. With little start-up capital, leasing makes it easier for young farmers to build more equity through land, buildings, or other assets while still being able to get the quality equipment they need. Especially with tighter lending requirements and lower farm income, leasing options are becoming more advantageous.
The following equations from the University of Nebraska-Lincoln’s Institute of Agriculture and Natural Resources can help determine if a lease option or loan is better for your operation.
Loan payments are divided up based on the purchase price and accrue interest over the length of the loan.
Lease payments are calculated based on a fixed monthly rate that factors in depreciation.
A low residual (equipment value at the end of the lease) and negotiated net cap cost make for the optimum lease value.
Buying a tractor is imperative to a farmer’s career and making the right purchasing decision is key. Tractor leases provide farmers with a cost-effective alternative to traditional loans that make it more possible for farmers to upgrade their equipment and maintain positive cash flow.