8 min read
$1 Buyout Lease vs. Equipment Loan: How to Choose
By Christopher Chavez, Founder — Northwood Capital Group
Two quotes come back on the same $120,000 machine. One is an equipment loan with 15% down. The other is a $1 buyout lease with first and last payment. Both end with you owning the equipment. The difference is where the money goes and when.
What a $1 buyout lease actually is
A $1 buyout lease — capital lease, $1 out lease, finance lease — is a purchase dressed as a lease. The lender holds title during the term, you make fixed monthly payments, and at maturity you buy the equipment for one dollar. You build equity the whole way, exactly like a loan.
This is not the same as a fair market value lease. An FMV lease has a lower payment because you are only renting the useful life of the asset, and at the end you buy at market price, renew or hand it back. Our equipment financing vs. leasing guide covers that comparison in depth.
Side by side
| $1 buyout lease | Equipment loan | FMV lease | |
|---|---|---|---|
| Ownership at end | Yes, for $1 | Yes, automatic | Optional at market price |
| Cash to start | First and last payment | 10–20% down typical | First and last payment |
| Monthly payment | Moderate | Moderate | Lowest |
| Total cost of ownership | Slightly higher | Usually lowest | Highest if you buy at end |
| Section 179 eligible | Generally yes | Yes | No — payments deducted as rent |
| Typical term | 24–72 months | 24–84 months | 24–60 months |
| Credit flexibility | Most flexible | Moderate | Flexible |
| Best for | Preserving cash, keeping the asset | Lowest lifetime cost | Fast-obsoleting technology |
A real payment example
Take a $120,000 excavator financed over 60 months at comparable pricing. The monthly payments look close. The cash difference shows up on day one and at the finish line.
| $1 buyout lease | Equipment loan | |
|---|---|---|
| Cash due at signing | ~$5,200 (first + last) | $18,000 (15% down) |
| Amount financed | $120,000 | $102,000 |
| Estimated monthly payment | $2,550 | $2,180 |
| Payments over 60 months | $153,000 | $130,800 |
| End-of-term buyout | $1 | $0 |
| Total cash out of pocket | ~$153,000 | ~$148,800 |
Figures are illustrative and vary by credit tier, equipment age and lender. The pattern holds, though: the loan is cheaper overall, the lease keeps roughly $13,000 in your bank account at signing. If that cash funds a job that earns more than the spread, the lease wins in practice even though it costs more on paper.
When the $1 buyout lease is the right call
- Cash is the constraint. You would rather keep the down payment working in the business.
- Credit is bruised. Lessors holding title can approve files a loan underwriter declines.
- You are newer in business. Under two years, lease structures are frequently the faster approval.
- You want a Section 179 deduction without a large down payment. Full expensing with minimal cash out.
- Private-party or auction purchase. Many lessors handle titling and payment to the seller directly.
When the straight equipment loan wins
- You have the down payment and want the lowest total cost.
- Strong credit, two-plus years in business. The best loan pricing beats any lease.
- You may pay off early. Simple-interest loans reward early payoff; leases usually do not.
- You want title in your name from day one — useful for some bonding, permitting and insurance situations.
How to choose, step by step
- Confirm the end-of-term language. Make sure "$1 buyout" is written in the contract, not "FMV" or "10% PUT."
- Compare total cost, not payment. Payment times term, plus down payment, doc fee and buyout.
- Check cash required to start. Decide what that cash is worth to you elsewhere in the business.
- Run the Section 179 math with your CPA. A first-year deduction can change the ranking outright.
- Match the term to the equipment life. Never carry payments past the productive life of the asset.
The tax angle in one paragraph
Because a $1 buyout lease is treated as a purchase, the equipment is generally Section 179 property — you can expense it in the year it is placed in service even though you put almost nothing down. An FMV lease does not work that way; those payments are deducted as rent over time. That single distinction is often worth more than the rate difference. See the Section 179 guide and the finance vs. lease deduction breakdown, then confirm with your CPA.
Get both structures quoted
Northwood Capital Group finances equipment from $25,000 to $5 million nationwide, and we quote the loan and the $1 buyout lease side by side so you can see the real numbers on your deal — including startups, ITIN borrowers and subprime credit.
Compare our equipment financing programs, start on the application page, or call (714) 679-8886 to talk through structure.