Do their terms seem to be lower than ours?
Make sure you're comparing apples to apples with financing options. Take a closer look at all the factors important to your bottom line.
Companies will often quote low 'stream rates' (sometimes even 0%), making you think you're getting a great deal. That's not necessarily the case. Really, your monthly payment, any advance payments (including a security deposit) and your end-of-term payments all factor into the final interest rate. When comparing quotes, make sure you look at all related factors so you secure the best deal.
It's typical for equipment finance companies to charge two payments in advance. If so, they can use your money to reduce the amount they have to pay the vendor for the equipment you're leasing.
Similar to advance payments, you're paying the company additional money for their own use. You still have to pay them the number of payments within the contracted term and fulfill all obligations before you get your deposit returned. In general, it's best to avoid paying any security deposit since many leasing companies will figure out a way to keep the deposit in the end.
If it's charged, it can easily add $100 or more to the true cost of your agreement.
The only legitimate fee an equipment finance company should charge on a small ticket agreement (less than $250,000) is called a UCC filing fee. This is used to record their interest in the equipment and runs from a few dollars to over $100, depending upon the county or state. Other common fees include collection fees, invoice fees, non-filing fees, personal property tax filing fees, as well as insurance.
Residual Charge if You Keep the Equipment at End of the Term
Fair Market Value leases offer benefits in many situations:
- if equipment will change with new technology;
- when you want a lower monthly payment; or
- when you're not sure if you'll want the equipment in the future.
At the end of the term, the leasing company is in control: they'll try to renew your lease, cut your rate or even try to sell you the equipment for more than projected at the start of the lease.
It's not uncommon for a leasing company to sell equipment for as much as 30% of the original cost. And, when you don't know what they paid for the equipment, the chances of overpayment are greater.
If you forget to tell the leasing company you want to buy, return or re-lease the equipment, your lease will usually renew automatically, and you'll be required to purchase the equipment at the end of the new term if you wish to keep it.