A lease is not a loan, therefore, there isn’t an interest rate. Calculations for a lease are based on monthly rental rates, the term of the lease, the collateral being leased and the applicant’s strength.
Leases are unique as in they allow you to walk away at the end and return the equipment... renew or extend the lease... depreciate or expense. You can’t do this with a loan.
Why not just get a bank loan?
There are many reasons to lease rather than take out a bank loan.
1. Banks will only finance 80% of your loan, requiring a 20% down payment. Leasing finances 100% of your loan and can include installation charges, maintenance contracts, software, training and other misc. fees that banks will not include.
2. Leasing allows you the option to own or return the merchandise at the end of the term. Returning the merchandise allows you to remain on the cutting edge of technology, always having the most up-to-date equipment.
3. Leasing payments are usually lower than purchase prices.
4. Working capital in your business is not attached and is free to use as you like.
5. Leasing does not require additional liens on your business, equipment, or future purchases.
6. Flexibility of payments. Leases can be structured in a manner that benefits your business. Bank loans are fixed payments.
7. Banks require large down payments and may put a lien on your business or your home. Leasing will only put a lien on the equipment that is being leased.
8. Leasing allows you to leave your line of credit untouched and available should you need it for an emergency.
Benefits of a Purchase Option?
You may choose either a $1 purchase option or a percentage buyout at the end of the term. Choosing a 10% purchase option will lower your payment and give you the opportunity to turn in your equipment at the end of the term. This is popular with equipment that will be obsolete at the end of the term, allowing you to upgrade and get a new piece of equipment. You may also opt to refinance the purchase option for an additional time period.
What kind of fees are involved in leasing?
GOOD QUESTION! Fees vary depending on the leasing company you use.
1. Documentation fees vary and can be between $100 and $350. This dollar amount fluctuates with the amount or type of lease. Everyone pays this. This includes the application process, credit checks, overnight fees, and the processing of the actual leasing documents.
2. Site inspection fee. Not all leases require a site inspection. They are reserved for leases over $50,000.00, used equipment and specialty leases such as sale-lease backs or third party equipment locations. This fee can range from $150 to $300 depending on the accessibility of your business. Remote areas and 24 hour service are more expensive.
3. Commitment fees are generally 1% of the application amount. This fee is reserved for large leases that will result in many hours of work. We ask for this fee as it assures us the customer is serious and keeps the lease from being sent broker to broker.
4. Lien search fees may be charged separately. This will depend on the institution that buys your lease.
Will there be a down payment?
Generally, the lease will commence with a first and last payment.
Any other upfront fees?
Any upfront fees should be, of course, discussed in advance and in writing. We suggest avoiding any company that requests money in advance with only an approval. Approvals should be followed by legal documents that will commence your lease. When you sign the documents you are required to return them with your advance payments. A promise of an approval with small print saying additional information may be necessary is worth questioning.
What about insurance?
Insurance is required on all leases. However, you can simply add it to your current policy. Our documentation department will do this for you.
Call RRFS anytime with questions on a new lease, an old lease or whatever question you might have. We can help you protect yourself and your finances. Remember, protect your credit by not giving out your social security number and your home address to just anyone.