Comparing Interest Rates on Equipment Loans to Equipment Purchases

What can interest rates on equipment loans do for you? What is leasing?

interest rates on equipment loansBusinesses are all about weighing your short term and long term perspectives; despite the needs you have for your company in the moment, making sure the decisions you make benefit you in the long run is important. Choices you make to make your life easier now, when starting up your business, can come back to be your downfall later.

That’s why it’s always best to find the easiest choices that can benefit you all the time, short term and long term both. This is especially the case when dealing with equipment, an expensive part of a business that can be very spontaneous in the long term.

However, you do want the best equipment possible for your business, and that costs money. Factoring every different positive and negative of how you can obtain your equipment is important; most businesses will either lease or purchase (sometimes with financing) their hardware.

Looking at both of these decisions and examining options like the interest rates on equipment loans versus leasing equipment can help you determine what can save you money in the short term and long term and which will have the more positive impact on your company.

Interest Rates on Equipment Loans and their Impact

Unlike a bank loan, an equipment loan or an equipment lease involves a contract where you get the equipment and, in return, you pay a flat, monthly rate. You get different deals and offers throughout the lease, and as long as you keep paying the rate, your business runs into no trouble.

At the end of the lease, your company gets to choose to return the equipment, continue the lease and get an upgrade, or purchase the equipment for a bargained price. Leasing is designed more for newer businesses because they can get all of their equipment set up without paying too much for hardware, but many businesses do using leasing for a fair percentage of their equipment, whether newer or more veteran.

Leasing does have advantages throughout the period of the lease; besides upgrades during the end of the lease, you can also get upgrades throughout the lease, especially if you have a longer lease period. There are also tax deductibles you get for having a lease, putting money in your pocket every year during returns.

One of the major downsides of hardware is that, over time, it breaks, and leases normally have some deal involving getting your hardware repaired or replaced for a smaller price than it’d cost if you purchased the hardware. In addition, even though leasing is considered a type of loan, it’s not very similar to a bank loan.

In other words, interest rates on equipment loans are null; as long as you pay the monthly rate, your business will be in the clear.

Downsides of a Lease

The main problem with a lease is what happens if you don’t pay the monthly rate or decide you don’t want the lease; basically, there’s a price to pay for getting out of the lease like any other contract. There is a cancellation fee, and this tends to scare business owners out of getting a lease in the first place.

The problem is that buying equipment can be so much more challenging because, in the long run, equipment breaking down or becoming outdated becomes enough of a problem where business owners have to keep purchasing the same hardware over and over again. Plus, if they got a bank loan, the interest rate will keep going up and they’ll keep digging themselves deeper into debt.

The fact of the matter is, leasing can be positive, but you need to make sure that you want/need the lease and you need to make sure every detail is the way you want it before signing on the dotted line. A lease is a contract but getting one is not mandatory; the best way you can go about getting a lease is shopping around and finding the best choice for your business.

If you have a good idea of what you want to spend and how long you want the lease to go is also helpful going into lease shopping. To learn more about leasing and the interest rates on equipment loans, click here.