What (too many) online equipment leasing companies do
Bait and Switch – Fake Low Leasing Rates
If you were to Google a piece of equipment to lease and you saw something that said “rates as low as 5%”. Then you go to the website and it asks you to fill out a form to get your quote. This is NOT a reputable company to work with.
First, let’s call them out on the 5% rate. Very few qualify for those rates. That’s usually for companies buying new equipment from a dealer, (who is going to offer them zero percent financing a lot of the time) who have perfect credit, many years in business and large annual revenues.
That’s where we differ. We can’t tell you anything about your payments until we ask you a few questions. You don’t get to walk into a car dealership and get quoted a firm payment without being asked a few questions, so why should equipment leasing be any different?
Back to that 5% rate example. It’s not like the “Annual Percentage Rate” for your home loan.
Equipment finance agreements are quoted in payments, not rates, and will almost never include a “rate” because they don’t amortize like a loan. Since it is not amortized like a loan, you’re being quoted “simple interest” as opposed to an Annual Percentage Rate.
What’s the difference?
If I’m buying a $40,000 tractor, and I am quoted $825 as my monthly payment for 5 years — to compute simple interest let’s use this example:
If I pay my first and last payment up front (which is common), I am really financing $38,350 for just 58 months. So to borrow $38,350 I am paying, over 58 months, a total of ($825 X 58) = $47,850. My total finance charges are $47,850 – $38,350 = $9,500, for $164 a month in finance payments – $1,965 annualized. That comes out to around 5.1% simple interest.
However, if I compute it like a loan that is amortizing (which is how the average consumer assumes the rate is being calculated) I have to pull out a financial calculator, and when I enter the numbers, the rate on an “APR” is actually 9.6% as opposed to 5.1%. That’s a big difference!
That’s not to say that you shouldn’t pay rates like that – that’s what equipment financing really costs – in fact, that would be on the lower end of the payment scale.
Just avoid doing business with companies that reel you in by pretending their rates are lower than they actually are. That’s unethical!
Bait and Switch, Part 2 – Equipment Leasing Calculators
A lot of equipment finance websites have an “Equipment Leasing Calculator.” They’re all total garbage. Why? Because they spit out the very best rate. That’s not the method reputable companies use to calculate equipment leasing payments. It’s unlikely that rate will be what you really are going to pay.
A few calculators tested online, all had around the same quote. $50,000 for 60 months on a $1 buyout was going to be $1,125 or so per month. That may be an accurate quote for an “A” credit borrower. Although, many company’s that want to lease won’t qualify as an A credit client.
This issue is prevalent all over the Internet and is misleading and unethical in our opinion.
Please visit our equipment leasing page and scroll down to our download link for our Equipment Leasing Application.
After returning our completed application, we’d be happy to quote equipment leasing payments on most any equipment type starting at $50K and above. Contact us today, with any questions you may have.