Leasing vs Loan — Ownership Debt vs Lease Structures
How NPV, tax, residual value and IFRS 16 shape the buyer's structural choice.
Decision matrix
| Dimension | Loan-financed ownership | Lease |
|---|---|---|
| Ownership at maturity | Yes | Depends on structure |
| Residual-value risk | Buyer | Lessor (operating) or lessee (finance) |
| Balance sheet (IFRS 16) | Debt on BS | RoU asset + lease liability |
| Tax treatment | Interest deductible, depreciation on asset | Varies by jurisdiction & classification |
| Flexibility (end of term) | Sale, keep or refinance | Buy, extend or return |
| Upfront capital | Equity + debt drawdown | Minimal / advance rental |
- The asset has long useful life and predictable residual value.
- The buyer benefits fully from depreciation and tax shields.
- Ownership at maturity is strategically important.
- The lessor can price residual value tighter (specialist assets, fleets).
- Obsolescence risk is high and the buyer wants to shift it to the lessor.
- Tax and depreciation asymmetries create a shareable surplus.
Worked example
A USD 20 million reefer fleet with 7-year useful life and expected 25% residual can be (a) purchased via a 5-year amortising term loan at 7.0% or (b) leased as an operating lease at USD 3.1m annual rental over 5 years with a return option. NPV comparison at the buyer's cost of capital, on identical residual, maintenance and tax assumptions, isolates whether the lessor's residual pricing or tax position creates real surplus.
Related pillars
The lease pillar in full.
The loan alternative.
Model the two structures side-by-side.
Frequently asked questions
Are leases still off-balance-sheet under IFRS 16?+
No. Since IFRS 16 (effective 2019), lessees recognise a right-of-use asset and a lease liability for virtually all leases with a term above 12 months. The off-balance-sheet treatment of operating leases has ended for financial reporting.
How do I compare a lease and a loan on identical terms?+
Build an after-tax NPV on both, using the same cost of capital, the same asset and maintenance assumptions, and disciplined treatment of residual value and end-of-term options. The difference isolates the real economic surplus available in the lease.
When does hire purchase make sense?+
For small-ticket equipment where administrative simplicity matters more than optimising tax or residual mechanics. Title passes automatically at the end of the term against a nominal option.
Can leasing be ECA-backed?+
Yes. Cross-border lease structures can incorporate ECA cover on the lessor's exposure. Structures are more complex than direct loans but achievable for large capital equipment.
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