The equipment lease rates you will ultimately end up with will depend on a number of different factors similar to those that impact financing from any other type of financial institution.
Currently the competition in the equipment leasing industry is stiff. This ought to be great news for anybody who wants to lease equipment because it puts them in a better position to negotiate. Chances of any leasing company walking away from a deal because of intense haggling by the client are minimal with so many other leasing companies out there keenly gunning for business. However smart negotiating will be impossible if you hardly understand the factors that will determine the rates.
What Determines Equipment Lease Rates?
Volume Of The Deal
Lease rates will tend to vary from one leasing company to another. Apart from the factors that affect everybody, the area covered by the leasing company and their current internal financial variables are contributing factors to the rates they offer their clients.
However virtually all rates will hinge on the volume of the deal. The larger the amounts involved the lower the interest rates will be. This is why it makes sense to group several leases in one deal whenever possible.
How Quickly Does Your Equipment Depreciate?
Those unfamiliar with the workings of a lease will tend to rush to look at the interest rates first. As important as they are, how fast your equipment depreciates is even more important when it comes to equipment leasing rates.
The less quickly the equipment being leased depreciates in value, the lower the interest rates should be.
Your Credit Score
This one should be obvious because it applies right across the board. The higher your credit score the better the borrowing rates you will get anywhere and leasing is no exception. That means a low credit score will make you vulnerable to all kinds of exorbitantly high rates.
What Type Of Lease Is It?
There are several types of leases but the two main ones are operating leases and capital leases.
Capital leases as the name suggests are designed to ultimately give the lessee the benefit of ownership. This is why they are most appropriate for equipment that does not become obsolete too quickly. These leases will also be for longer periods of time. The interest rates here are bound to be lower than in the case of operating leases.
Operating leases are crafted to give access to the equipment for only a short period of time and ownership at the end of the lease is not anticipated. This type of lease is ideal for equipment that becomes obsolete pretty fast. Naturally in this case the rates will be much higher than those expected in capital leases.
Just How Important Are The Interest Rates?
Taking the above factors into consideration it becomes clear that the interest rates are not as important as the other factors of the deal. In America lease financing covers a very wide range of different equipment from medical equipment to printing machines, trucks and virtually anything else you can think of. Every equipment has its’ own special considerations for a leasing company.
And so the interest rate has to be the last thing you consider well after analyzing factors like what kind of equipment you want to lease, it’s purpose in your organization and whether or not it is wiser to take a loan instead of leasing the equipment. Answers to these key questions will depend very much on your unique situation. That includes your needs as well as current financials. All these are much more likely to lose you sleep than interest rates.
Risk Factor
Lease financing for equipment just like any other form of financing will tend to put the risk factor at the top of their list of considerations when deciding what rate is to be paid. Ultimately the leasing company is a business and no serious business will get involved in any transaction without carefully considering the risks involved in each particular case.
The risk factor will vary from equipment to equipment. All possibilities have to be considered. For instance what is the likelihood of damage? How quickly is the equipment bound to become obsolete based on the latest technological developments related to its’ manufacturing process? What is the probability of the client in question not being able to meet monthly payments at some point? All these key factors that will probably never appear in any form a client has to fill to apply for equipment leasing but will still have a huge impact on the rate.
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