Did you know that you can choose your own heavy equipment financing rates? This is only possible when you put into consideration a few factors.
Leasing is the most widely used method of acquiring equipment for business owners in America today. Lease financing provides you with flexibility and control. The American equipment finance industry is very competitive but many financial managers and business owners are not fully aware of how heavy equipment financing rates are calculated, what affects your monthly pricing and how they can be managed.
How You Can Manage Your Own Heavy Equipment Financing Rates
By Type Of Lease
There are many types of leases offered by heavy equipment leasing companies but the two most common ones are the capital lease and the operating lease. The capital lease allows you to lease equipment that you can purchase at the end of the lease term. You will have the option of purchasing the equipment at $1 or at fair market value. The rates in this type of lease are usually much higher than in other types of leases. This is because part of the monthly payments serves as a down payment for the equipment and you are financing the equipment 100%. When choosing this type of a lease you have to be sure that you will be able to purchase the equipment at the end of the lease period. This is because it would be a waste of money if you pay such high equipment financing rates only to end up not being able to purchase the equipment.
If you are not sure that you want to purchase the equipment, you should choose the operating lease. The operating lease has lower heavy equipment financing rates and you have the option to purchase the equipment at the end of the lease. The cost of purchase can be very high and the fair market value of the equipment cannot be pre-negotiated. You can extend the lease term but this will convert it into a capital lease.
By Credit Score
Your credit score is very important in helping you determine your heavy equipment financing rates. If you have a very low credit score, negotiating for better rates can be quite a challenge. There are many factors that can affect your credit score and one of them is shopping around for better rates. Shopping around for better rates is both beneficial and detrimental. For instance, when you shop for better rates, you are likely to find a good deal but at the same time, your credit score might significantly be lowered. The reason is very simple. When you send out applications to different leasing companies, most of them will do hard credit checks. Hard credit checks can lower your credit score by as much as 140 points. Soft credit checks as those done on LeaseQ will have no impact on your credit score.
By Type Of Leasing Company
The type of leasing company that you choose to work with will also affect your heavy equipment financing rates. Some companies acquire equipment by borrowing funds from banks or insurance companies. If you plan to lease from a large financing company that is well funded and managed, your chances of getting aggressive rates increases.
Why Heavy Equipment Leasing Solutions Are Popular
Leasing solutions are popular among heavy equipment companies because of the many benefits that they offer. Companies can choose their best payment alternative depending on their cash, ownership, tax and accounting needs. Here are some of the reasons why leasing is a perfect solution.
- Leasing allows you to upgrade equipment as technology changes.
- Leasing allows you to finance additional expenses such as maintenance, installation and repairs.
- It enhances budget planning thanks to the low fixed payments that protect against inflation.
- Whether one, two or three down payments are used, leasing should have lower monthly payment than other types of financing such as bank loans or making direct purchases.
- You can lower your monthly lease payments by paying one or two advance deposits.
- You do not require any upfront cash and if you do, it is very little compared to what you would normally pay for a loan.
- Leasing companies can offer cash savings to you by lowering monthly rental payments because they assume that the equipment will have residual value at the end of the lease period.
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