Two quotes come in on the same $150,000 excavator. The bank offers a loan at 9.5%. A leasing company offers a factor of 0.0185. The lease payment is $375 a month lower, and the factor looks like a fraction of the loan rate. Most buyers sign the lease — and if they keep the machine, they pay about $22,500 more for it.
Nothing in that quote was dishonest. The two numbers are simply not the same kind of number, and this page is about how to put them in the same units before you sign either one. The full walkthrough of how leasing itself works — the buyout structures, who leases in Canada, the tax side — lives in the equipment leasing guide; the loan side of the market is in the rates guide. This page is just the comparison, done properly.
The Two Numbers Answer Different Questions
A loan rate prices borrowed money. You borrow $150,000, you pay it back to zero over the term, and the rate is the cost of that money. Nothing else is hiding inside the number. Two loan offers can be compared on rate and fees, and the comparison means something.
A lease factor prices the use of a machine someone else is betting on. The lessor buys the machine, rents you its working life, and makes an assumption about what it will be worth when you hand it back or buy it out. The factor — the decimal you multiply by the equipment cost to get your monthly payment — bundles three things into one number: the interest rate, the term, and that residual-value bet.
That bundling is the entire problem. A factor can be small because the rate is genuinely low, or because the residual assumption is large — and from the printed number alone you cannot tell which. A loan rate of 9.5% is information. A factor of 0.0185 is an answer without the question.
What Lease and Loan Rates Actually Run Right Now
Both products price off the same base — the Bank of Canada held its policy rate at 2.25% in July 2026, with bank prime at 4.45% — and the same credit-tier logic on top:
| Credit Tier | Score Range | Typical Loan Rate | Typical Effective Lease Rate | Common Lease Structure |
|---|---|---|---|---|
| Excellent | 750+ | 6.5-8.5% | ~6-9% | FMV or $1-buyout, low/no down |
| Good | 680-749 | 8-10.5% | ~9-12% | $1-buyout common |
| Fair | 620-679 | 10-14% | ~12-14% | $1-buyout, first/last upfront |
| Challenged | Below 620 | 13-22% | ~14-16%+ | $1-buyout, larger upfront |
Same shelf, same tiers. If someone tells you leasing is categorically cheaper than borrowing, they are reading the payment, not the price.
See Your Likely Rate Range
Two questions, no credit pull. Get a directional rate range and the lender category your file is most likely to fit.
Pick a credit tier and equipment age to see your likely rate range.
Same Machine, Three Structures: The Worked Math
Here is the honest comparison, with the rate held constant so every difference you see is structure, not pricing. One $150,000 machine, 60 months, 9.5% across the board:
| Loan | $1-buyout lease | FMV lease (30% residual) | |
|---|---|---|---|
| Monthly payment | $3,150 | $3,150 | $2,561 |
| As a factor | 0.0210 | 0.0210 | 0.0171 |
| Total of payments | $189,017 | $189,017 + $1 | $153,687 |
| End of term | You own it | You own it | Buy at ~$45,000, return, or upgrade |
| Total cost to own | $189,017 | $189,018 | $198,687 |
| Total cost to use (walk away) | — | — | $153,687 |
Three things fall out of that table:
The loan and the $1-buyout lease are the same deal in different paperwork. Same payment, same total, and the factor equivalent of a 9.5% loan over 60 months is 0.0210. If a $1-buyout quote lands meaningfully above the loan payment at your tier, the difference is the pricing — ask for the implicit rate.
The FMV lease's lower payment is deferral, not savings. The $589 a month you are not paying is sitting at the end of the term as a $45,000 decision. If you hand the machine back, you genuinely paid less — for use, not ownership. If you keep it, owning through an FMV lease at the same rate costs about $9,700 more than the loan, because you carried interest on a residual that was always going to come due.
Which column matters depends on your plan, not the quote. A machine you will run for ten years belongs in the ownership columns. A machine you will cycle out of in four belongs in the use column — and there the FMV lease is legitimately the cheapest number on the table. The lease-vs-finance guide works that decision through properly.
The Trap: When the Lower Factor Is the More Expensive Deal
Now the version that actually shows up in quotes, where the rate is not held constant and the factor does the hiding.
Same $150,000 machine. One lessor quotes a $1-buyout at a 0.0210 factor — which you now know is 9.5%. Another quotes an FMV lease at a 0.0185 factor, 30% residual. The second quote has the smaller factor and the lower payment ($2,775 vs $3,150). It looks like the better deal twice over.
Run it to the end of the term:
- 0.0210 $1-buyout: $3,150 × 60, plus the dollar = $189,001 and you own the machine (the same 9.5% deal from the table above, quoted as a factor — the few dollars of difference is factor rounding).
- 0.0185 FMV, then buy out the $45,000 residual: $2,775 × 60 + $45,000 = $211,500 to own the same machine.
The "cheaper" quote costs $22,500 more, because that 0.0185 factor is an implicit APR of roughly 11.9% — the small decimal was hiding a rate two and a half points higher, behind a residual you were always going to owe. This is not an exotic scenario; it is the standard shape of a factor-quoted FMV lease shown next to a loan, and it is why the factor is never the number to compare.
Key takeaway: A rate factor is not an interest rate, and a lower payment is not a lower price. The only comparison that cannot mislead you is total of all payments plus buyout, side by side — and the equivalent APR if you want the rate in loan units.
The Tax Timing Wedge
The other place lease and loan quotes refuse to line up is tax, and it follows the same structural split. Canada applies a legal-form test: a $1-buyout lease is, in law, a conditional sale, so the CRA taxes it like the loan — you claim Capital Cost Allowance plus the interest, not the payments. A true FMV lease deducts the lease payments themselves, which is a faster, steadier write-off on machines whose CCA class front-loads slowly. If the tax treatment is part of why you are leasing, the structure decides whether you actually get it — the lease-vs-finance guide covers the CCA classes, the section 16.1 election, and where each treatment wins. Confirm your own position with your accountant; the form of your specific contract governs.
How to Force Any Two Quotes Into the Same Units
Tip 1: Get the total of all payments, in writing. Payment × months. Every legitimate lessor and lender can produce it in seconds, and it collapses most of the confusion on its own.
Tip 2: Ask for the equivalent APR. The lessor knows the implicit rate of their own quote. Declining to state it is an answer too.
Tip 3: Put the residual on the table. How much, who set it, and what happens if the machine is worth less than the assumption at term-end — on an FMV lease that risk sits with the lessor, and you are paying for that in the factor.
Tip 4: Price the end of the term, not just the middle. Return conditions, hour caps, purchase deadlines, automatic renewals. A lease that quietly rolls into month-to-month renewal payments can erase everything the low factor saved.
Tip 5: Compare the exit. What does breaking each deal cost in year two? Loans typically pay out the balance; leases can carry the remaining payments in full. Plans change more often than terms do.
Mistakes That Cost Real Money
Comparing the factor to the interest rate. The single most common error in equipment finance. 0.0185 is not "1.85%" and it is not comparable to 9.5% — as printed, the numbers do not share units.
Reading the lower payment as the cheaper deal. Deferral is not savings. The residual comes due in cash, in a buyout, or in handing back a machine you wanted to keep.
Signing an FMV lease for a machine you intend to own. The lowest-payment structure is the most expensive path to ownership. If keeping the machine is the plan, price the $1-buyout or the loan first.
Ignoring who bears the residual risk. If the lessor bears it, you are buying insurance you may not need. If you bear it — via a guaranteed buyout — you have a loan wearing lease paperwork, and it should be priced like one.
Letting the tax pitch pick the structure. The write-off follows the legal form of the contract, not the sales pitch. A $1-buyout does not get the full-payment deduction, no matter what the brochure implied.
Sources: policy rate and prime — Bank of Canada, July 15, 2026 rate decision (policy rate 2.25%, prime 4.45%); lease vs. purchase tax characterization (legal-form test) — Canada Revenue Agency, T4002 and CRA leasing costs; lender categories and terms — BDC. Worked figures are standard amortization and lease arithmetic on the stated assumptions (payments in arrears; many real leases bill in advance, which nudges an FMV deal's implicit rate slightly higher — the trap example's roughly 11.9% becomes about 12.2%), shown for comparison mechanics — your quote depends on your file, the machine, and the residual. Rates are directional market benchmarks as of August 2026 that move with prime, not offers.
Getting Both Numbers on Your Machine
The comparison on this page is the one to run before you sign anything — and it is exactly the kind of thing worth a second set of eyes. If you have a lease quote, a loan quote, or both on a specific machine, send them over and we will convert them into the same units and tell you straight which one costs less for how you plan to use the machine.
When you are ready to move, start an application, or keep reading: how leasing works end to end, the lease-vs-finance decision, or the full loan rate picture.
Already own equipment, or eyeing a different machine?
Frequently Asked Questions
Are equipment lease rates higher than loan rates in Canada?
Not inherently — both price off the same Bank of Canada prime (4.45% as of August 2026) and the same credit-tier logic, so effective lease rates land in a similar band to loan rates: roughly 6-9% for 750+ credit down to 14-16%+ for challenged files, against 6.5-22% for loans. The difference is not the pricing, it is the quoting: a lease is usually quoted as a rate factor that bundles the interest rate, the term, and the residual value into one decimal. That bundling is why a lease can look cheaper or more expensive than it really is until you convert it.
How do I convert a lease rate factor to an interest rate?
You cannot read the interest rate off the factor directly, because the factor also contains the term and the residual. The practical conversion is: multiply the factor by the equipment cost to get the monthly payment, multiply by the number of months to get the total of all payments, add the buyout you would pay at the end, and compare that total against the loan total on the same machine. For the exact equivalent APR, ask the lessor — any legitimate leasing company can state the implicit rate of its own quote. As a worked example, a 0.0185 factor on a $150,000 fair-market-value lease with a 30% residual works out to about an 11.9% implicit APR — not the single-digit rate the small decimal suggests.
Why is a lease payment lower than a loan payment on the same machine?
Residual value. A loan pays the whole machine down to zero over the term. A fair-market-value lease only finances the depreciation during the term — the residual is left to settle at the end. On a $150,000 machine over 60 months at the same 9.5%, the loan payment is about $3,150 while an FMV lease with a 30% residual is about $2,561. The $589 a month you are not paying has not disappeared; it is waiting at lease-end as a $45,000 buyout, a return, or an upgrade decision.
Is a $1-buyout lease rate the same as a loan rate?
Economically, close to identical. A $1-buyout lease pays the machine down to a token dollar, so there is no meaningful residual and its payment lands almost exactly where a loan payment lands at the same rate — a $150,000 machine at 9.5% over 60 months runs about $3,150 a month either way, which is a factor of 0.0210. If a $1-buyout quote is far off the equivalent loan payment, that gap is the pricing, and it is worth asking the lessor to state the implicit APR.
What should I ask a leasing company before signing?
Five things put a lease quote and a loan quote in the same units: the total of all payments over the term; the equivalent APR; the residual or buyout amount and who bears the risk on it; the end-of-term obligations (return conditions, purchase deadline, automatic renewal clauses); and the cost of exiting early. A lessor who will not state the total of payments or the implicit rate of their own quote is telling you something about the deal.