Rent, Lease, Buy or EaaS: What’s the Best Option for Construction Equipment?

Economic conditions and market uncertainties have big impacts on whether it’s the right time to add equipment to your fleet. Traditionally you would have to consider whether renting, leasing or buying is the best option. But now a fourth alternative is on the menu: Equipment as a Service, which offers a new way to use a fleet over the long term without owning it.

And what about new versus used equipment? Special financing rates can make buying new attractive, but using rentals or leases to supplement an owned fleet can be a smart strategy, too. And if you’re thinking now is a good time to invest in a piece of used equipment, the certified machines in our used inventory are serviced to extend machine life and lower your operating costs.

So, which is the best option for you? There’s really no right or wrong answer — it depends on your unique situation. To help you understand your options, we’ve laid out some pros and cons of renting, leasing and purchasing your next new or used machine.

Rent

Renting is typically most popular for shorter term needs (months or weeks). Also, smaller companies may not own many pieces of equipment and therefore may rent more often. If you’re interested in renting, you’ll want to keep machine availability in mind. The more standard a machine is the more likely it will be available for rent, whereas specialty equipment is typically more difficult to find and rent for short terms.

Pros

Most flexible (month-to-month payments)
Lower capital requirements
Not responsible for maintenance
No need to put a rental on the balance sheet
Pay only for use and time you need it
Can opt to try before you buy with a rental purchase option (RPO)
Equipment rentals from a Volvo dealer can be paid for with a Smart Commercial Account

Cons

Possible use restrictions
Usually has higher monthly payments than loan financing and leasing (like buying a house, buying a machine has a slightly lower payment than renting, and the buyer is building equity)
Likely to incur charges for damages
Higher long-term use cost
Limited to what’s on the lot
Some specialized equipment may not be available when it’s needed
In the U.S. right now, all rental payments may be expensed against taxable income, but currently with ownership, the full price of a machine could be depreciated for tax purposes in the first year however, you should check with your tax advisor for your individual situation.
Rental companies and dealers have the right to swap out a rental machine if it’s sold, which could cause delays and/or operator re-training.

Lease

Leasing adds a blend into the total ownership/use mix of your fleet, which most companies like. Leasing is more flexible than buying, but less flexible than renting — you have to commit to a period (usually 24 to 60 months). Typically, companies that have access to their own source of capital choose to buy rather than lease.

Most equipment can be leased, but the more specialized a piece of equipment is, the higher the relative cost of leasing becomes. This is because the party leasing the equipment may not have a big enough secondary market to sell the unit upon its return. Cost of equipment can also play a role, as more expensive equipment ties up more capital.

Currently, the number of leases relative to the amount of transactions (lease, finance purchase and cash purchase) is down significantly from 2018. Previously, lease payments may be incurred on the profit and loss (P&L) statement and may not affect a customer’s balance sheet. However, due to changes in International Financial Reporting Standards (IFRS) and U.S. Generally Accepted Account Principles (GAAP), leased machines may now need to be added to the balance sheet and depreciated over the period of the lease, as would a financed machine or a machine purchased outright (rentals may not need to go through the balance sheet). Be sure to check with your tax advisor before making these decisions.

Pros

Typically, low monthly payments compared to rental
Return the equipment at the end of the lease term
No large initial capital outlay
Choose the specific features you want on the equipment
Get a brand-new piece of equipment versus rental units that may have substantial hours on them

Cons

Fixed term with obligations that you have to keep (e.g., 24-month lease)
Commitment period is typically much longer compared to rental
Never really build any equity
Contract hours can be a challenge. If you build in more contract hours than you use, you’ve effectively paid more than necessary because unused hours aren’t refunded. Conversely, there’s a significant penalty for using more than the contracted hours — same as there are with miles on a leased car.

A note on leasing: We’re always looking for ways to help customers get the machines they need to get jobs done while better managing their costs. That’s why right now we’re offering a one-of-a-kind all-inclusive lease on electric equipment. If you’ve ever considered integrating a compact electric excavator or loader into your equipment lineup, but you’re still a little skeptical about the best way to do it, this one-of-a-kind lease is a great way to make it happen.

Buy

Some companies prefer to buy equipment as it’s part of their long-term capital strategy (that’s also sometimes true with leasing, but not rentals because they’re not building equity by renting). And recently, owner operators have trended more toward buying versus leasing. When buying, opt for bundled services, such as an extended warranty and a service agreement, to ensure your equipment is properly maintained. Today, there are monitoring services like Volvo’s ActiveCare Direct^® that monitor equipment functions and alert owners and/or dealers of any major issues. These services are available for leases as well.

Pros

Equipment ownership and building equity
More economical for longer term needs
You know the machine’s health and its dependability
Currently in the U.S. you may be able to generally depreciate the entire cost of the machine in the first year, versus only the payments in a lease; this holds true for both new and used equipment
Pride of ownership

Cons

May be cheaper to rent for short-term needs
The least flexible option — once you buy it, you own it
In cycle management, you may want to de-fleet as your work slows down

Equipment as a Service (EaaS)

Equipment as a Service is a new approach to procurement where a customer can secure use of a fleet for a long period of time without having to manage the iron directly (or even own it). Under a long-term agreement, the customer receives a fleet to use, fully maintained, and is billed for use according to agreed fixed hourly rates.

Pros

No CAPEX impact — fleet costs are an operating expense (OPEX) which saves any internal cost of capital and allows capital to be invested in more value-added aspects of the core business, no property tax for the fleet assets
Very efficient cashflow — pay as you go with no up-front investment; fleet costs align closely to revenue generation
No back-end liability for equipment residual value or disposal costs
Manage long-term risks related to cost control, machine breakdowns, asset life-cycle management and obsolete parts and skills
Labor efficiency — leverage the skilled labor of the EaaS supplier for fleet maintenance so you can invest your skilled labor for more core business activities
Potential to refresh/replace fleet during the contract at no additional cost
Fleet uptime guarantee — provides assurance the quality of this service is delivered
Partnership — the EaaS provider has a shared interest and incentives to keep the fleet available and operating, so you can get the job done

Cons

Usually requires a long-term commitment (# of years), otherwise rental is a better alternative
Not conducive to 1-2 machines — some critical mass of fleet is needed to synergize the service and support over the long term
Fleet maintenance cost (included in hourly rates) may be higher because you’re paying for OEM parts and travel time/mileage for certified (trained) technicians to do the work, as opposed to in-house and on-site labor

Volvo Financial Services

When you’re in need of a new machine, Volvo Construction Equipment and Volvo Financial Services partner to help you find the best heavy equipment financial option for your specific situation. Many contractors can get into the habit of leases only, which doesn’t always make good financial sense.

Through our extensive dealer network, we provide a broad range of options and pride ourselves on being very flexible at tailoring programs that work specifically for you.

By Agako Nouch, Vice President, Sales; Ryan Sherwood, Vice President, Retail Development; and David Nus, Head of Fleet Management