Leasing, Renting, or Buying a Forklift
Forklifts are expensive pieces of equipment. The decision to rent, lease, or buy a forklift or an entire fleet depends on your business needs. For example, if you require active use of a forklift, then it may make sense to lease or rent it, which gives you access to current models. However, if you will only need a forklift occasionally, then perhaps purchasing one may be your best move. Take the time to consider the options and make the best choice for your business.
Rental and leasing are somewhat similar. In the case of renting, the term is shorter, typically a few weeks or months. Renting makes sense when you have a seasonal peak business period, and you need to move extra freight. It can also provide an opportunity for experimentation.
Sometimes, a facility manager will rent a different class of forklift or an alternative model to see if it will increase productivity. Rentals are typically expensive compared to lease or purchase options. This is because the rental also includes the cost of maintenance. The rental fee charged by the dealer must also cover the time that the forklift sits idle at the dealership between rental assignments.
Pros of Leasing
Maintenance charge included in cost
Opportunity to try newer models
Low cost of operating an expensive machine
Cons of Leasing
Poor maintenance service
Penalty for overuse
High cost if purchased at end of lease term
The cost of leasing can depend on a number of variables, including the cost of the machine. For example, you can expect to pay about $600 per month to lease a forklift with a value of $25,000, or in the vicinity of $1,100 per month for a $50,000 machine. Expect to outlay an additional fee for maintenance. Monthly leasing payments can vary depending on the circumstances.
Advantages of Forklift Leasing
The advantages of leasing include the following:
- Tax advantages: In most states, leasing is a tax-deductible operational expense, but be sure to check applicable state or provincial tax rules.
- Staying current with technology: Leasing allows for equipment replacement at regular intervals. The timely replacement of forklifts with newer models allows an operation to enjoy the productivity and safety benefits associated with new technologies.
- Testing new models: By utilizing a leasing program, operators can test new equipment without having to commit to buying it. After the lease term, a decision can be made about whether to return the machine or purchase it.
- Budgeted maintenance: The cost of forklift maintenance can be included as part of the monthly lease price. A benefit of purchasing a maintenance package is that it becomes a predictable monthly charge that facilitates accurate budgeting.
- Low initial costs: Operators can benefit from the performance of an expensive machine without having to pay the complete cost of buying it. Because the lease runs for three to five years, the monthly lease and maintenance cost more closely match with forklift usage, rather than paying upfront for new machines.
- Improved productivity: The more frequent replacement schedule helps keep down the average age of a fleet, increasing the likelihood of peak efficiency and a reduction of downtime.
Disadvantages of Forklift Leasing
The disadvantages of leasing include the following:
- Lease cost is higher than buying it: If you decide to exercise your option to buy a forklift at the end of the term, it will cost more than initially purchasing it. You are paying a premium to return it with no obligation with the dealer taking on the risk.
- Penalties for overuse: The lease will typically specify the allowable hours of usage. If the maximum amount is exceeded in such an agreement, there will be a penalty. The penalty may be waived if you decide to stay with the same dealer on the subsequent lease.
- No asset to borrow against: When a company chooses to lease, they do not have an asset to use as security, because the dealer maintains ownership.
- Poor maintenance service by the leasing company: Make sure to clarify the service details before signing a maintenance agreement. As a precaution, take the time to investigate the supplier's reputation and capabilities. If there are doubts about service, there may be a case for including an extra machine in the contract to cover unintended downtime.
Buying a Forklift
Buying a forklift might be the best course of action if a company:
- Has a preference for owning all its capital equipment
- Has access to a competitive line of credit
- Is stable and expects to use the forklift for 20 years
- Has cash available to make the purchase, or needs the asset on its books as capital equipment
Each should company look at the lease-buy decision through their unique lens. Rental continues to provide a useful short-term solution to seasonal peaks. However, from the standpoint of trends, most large companies are leasing forklifts. Offering budgeting stability and a steady influx of new equipment, leasing seems to be the better choice. Also, given the rapid rate of change in supply chain operations, leasing provides greater flexibility.