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Leasing Laptops: Choices and Options

Buying vs. Leasing is a question that exists for pretty much any big ticket item: from cars to computers. Leasing a laptop is along the lines of leasing a car, which makes particular sense in corporate settings, where a company doesn't want to have a large capital expense of buying laptops. Instead, the company chooses to not lock up the cash in the capital expense, but lease the laptops and pay a monthly lease. Given how quickly laptop technology has been changing in past few years, a lease also makes it easier to upgrade faster to the newer technology.

Many organizations choose a lease period to match their technology refresh period. E.g. if the organization likes to refresh their laptop technology for their employees every three years, they would lease the laptop for three years. This helps IT organizations to manage a defined cash-flow, and avoids having them to go through sometimes political issues involved with buying new equipment. Another big advantage is that the company does not have to go through safe disposal of equipment at the end of the technology cycle (the compliance requirements of disposing off e-waste like EOL laptops can be sometimes onerous).

While leasing a laptop, you will be faced with several choices, one of them being the kind of vendor you want to lease the laptop from. Three kinds of vendors lease laptops:

Laptop vendors: Vendors like IBM and Dell have financing organizations which lease laptops on behalf of the laptop vendor. If you have a fixed choice with a particular brand, e.g. if your IT organization would only like to support say IBM Thinkpads, then this tends to be a preferable choice.

Banks and financing organizations: Leasing typically involves setting up a complex financial transaction and carefully evaluating the risks involved (e.g.
checking credit history of the lessee). This are precisely the kind of activities that banks and lending organizations are experts in. These organizations typically partner with laptop manufacturers to offer laptop leases to their clients.

Independent vendors: Various independent companies specialize in renting and leasing equipment, including laptops. Sometimes these independent vendors may provide greater flexibility by offering choice across various laptop brands.

When comparing the cost of purchasing a laptop vs. leasing it, one of the key factors to consider is what kind of support you will get from either of the two options. Lets say that the laptop will be your primary work tool (a common scenario) and it is imperative that you get the laptop fixed or replaced within 24 hours of when it goes bad. Your leasing vendor may provide that option (typically at an added cost) or your can buy an upgraded warranty from your laptop vendor which provides for next-day exchange. A careful comparison should be done between the monthly lease payments for the contract which meets your support requirements vs. the cost of outright purchase with the upgraded warranty.

Several factors need to be taken into account while negotiating a laptop lease contract. As is true with most leases, in general, you want to make your laptop lease as flexible as possible. Some of this flexibility won't be free and may be available only to relatively big IT buyers. E.g. it can be very useful to have the ability to return the equipment earlier than the life of the lease - this enables you to not to incur the full cost of monthly payment if say the project terminates and you no longer need the laptop.

Laptops are generally leased under what is called a Fair Market Value (FMV) lease (also referred to as an Operating Lease). In a FMV lease there is no expectation of ownership at lease end. At the end of the lease, Lessee can return the leased laptops to the lessor without further obligation, purchase the laptops at the fair market value at that point of time or continue the lease for another period of time (usually at a lower monthly payment). In addition to a FMV lease, Dell also offers a "$1 Buy Out" lease, where the customer can purchase the laptop for $1 at the end of the lease term.

If you were purchasing a $2500 laptop from Dell with a 24 months lease, your monthly payment options (as calculated in April 2007 - with assumption of "Good Credit") are $114/month for the FMV lease and $125/month for "$1 Buy-Out" lease.

There are some factors which may make leasing a less attractive option for your particular circumstance:  Overall a lease typically represents a greater overall expense than purchasing a laptop. Dell charges $75 for just application processing for a Lease. If you are in the market to purchase a cheap laptop, say for around $599, that is a significant proportion of the purchase price of the laptop. The expense is proportionately more for the lower end laptops. With price of brand new business laptops plunging below $1000, some IT purchasers opt to simply buy the lower end systems. Also, if your needs for a very specific kind of laptops, e.g. if you need a rugged laptop or a Linux laptop, you may not be able to find these choices from your leasing vendor. A lessor may force you to buy insurance on your leased laptop. While insurance has its benefits, with a purchased laptop you (or your business) can decide based on your circumstances whether to buy the insurance or not.

Another negative issue with leasing a laptop is that you may be stuck with making monthly payments, even if you don't need the laptop anymore. Lets say you leased a laptop, and couple of months later your uncle gave you a shiny new laptop as a Chistmas present. Well, it will be very hard to get out of your laptop lease. If you had purchased your laptop instead, you could potentially eBay it. Leasing also comes with the added overhead of making the monthly payments. This would be an additional check you will need to make sure to pay before each montly deadline - e.g. Dell charges greater of 5% of the late payment amount or $29 for each late payment.

The most important factor that encourages IT buyers to use leasing as an option for the laptops is the ability to spread out the payments and keeping the capital available for business expansion functions. Other than minimizing the upfront cost, other advantages of leasing include a defined and predictable expense schedule and no burden of e-waste compliance.

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