Fitness equipment leasing rates can be very deceiving especially for gyms in search of equipment with the low “sticker price”.
Leasing to meet your gym’s financing needs can be the right solution but if you are considering leasing as an equipment financing option, you need to be aware of the factors that affect your leasing rates. The reason why a low equipment rate is very deceiving is that you cannot simply get the true value of your lease by just looking at the lowest price.
How Interim Rent Affects Fitness Equipment Leasing Rates
Many gym owners enter into a lease transaction they believe is the most competitive based on false fitness equipment leasing assumptions. Most lease calculations do not take into consideration the interim rent. Interim rent is basically the amount of rent that a gym equipment leasing company will charge you from the time you accept to lease the gym equipment until the official date the lease period begins. Most leases start on the first day of the following month after you have accepted the equipment.
In order to calculate interim rent for a lease with monthly payments, simply multiply the number of days in the interim period by the monthly payments. Divide your answer by 30. In some cases, the interim rent can add almost an entire periodic payment to the lease. In this case, the effective lease rate dramatically increases.
Here is an example of how an extreme case of interim rent can impact fitness equipment leasing rates. For instance, assume that you have accepted a 36-month lease for equipment that costs $200, 000 and the monthly payment is $6, 226. Assume that the lease is a capital lease and you plan to purchase the equipment at the end of the lease at $1. Therefore, your effective lease rate is 8%.
Assume that the interim lease period is 30days. Add these 30 days to the lease period. Your lease rate for 37 months will increase from 8% to 9.7%. This higher rate is generally a trap door in your lease that gives your lessor a higher return and costs you more in the long run.
Do You Really Need The Interim Period?
You might be wondering what the purpose of the interim period is if it only serves to increase your fitness equipment leasing rates. Many equipment leasing companies say that the interim rent is compensation for committing themselves to pay equipment vendors on your behalf in connection with lease transactions. They also justify that you use the equipment during the interim period.
The problem with this reasoning is that interim rent is not based on your borrowing rate but on the periodic lease payment. The periodic payment should not be used as a standard for calculating interim rent since each lease payment has a return-of-capital. A fairer measure would be to calculate your interim rent based on your borrowing rate.
Another problem is that your equipment lessor often does not have to pay for the equipment during the interim period so they may not incur any additional cost during this period. The result is that you will incur a significant increase in your fitness equipment leasing rates while the lessor gets to sneak in a few extra bucks. If you’re not careful, what you thought was a competitive lease can turn out to be a very expensive transaction.
Can You Fix The Issue Of Interim Rent?
Yes, it is possible to avoid paying interim rent and reduce the impact it has on your fitness equipment leasing rates. First, you can negotiate a lease that does not have interim rent. Because it can be hard to convince a lessor to remove the interim rent all together, you can simply negotiate with them to include part of the rent paid during the interim period as part of the payment period. The other part can be added to the end of the lease but the two periods should be fused together to form one full payment period.
Bottom Line
It is very important to understand the interim period and how exactly it affects your fitness equipment leasing rates. Review your lease carefully and negotiate where necessary. Even if you can’t get your lessor to eliminate the interim period, you can still find ways of blunting the impact it would have on your rates.
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