Comparing the Interest rate on Leased Equipment to Loans on Equipment

What is the interest rate on leased equipment, and is leasing your best option?

interest rate on leased equipmentOne of the more challenging yet rewarding parts of running a business is making financially based decisions, because as tough as it is to make those choices, the right choice can make life much better for you. For instance, a good hire for your business can improve sales and improve the quality of your business.

A good example is a restaurant, where the chefs and servers are what make the business run well, or a fitness center, where a good location can make the company reel in quite a bit more business. Something these businesses and many other businesses have in common is that they have an extremely high demand for equipment; not only do they need good, effective hardware, but they also require costly equipment.

Especially when a business is starting, paying for hardware can be extremely difficult, and there are quite a few short term and long term repercussions when you get your equipment for your business. Examining pros and cons can be helpful to determining how to get the equipment you need, like what is the interest rate on leased equipment versus the interest rate on a bank loan.

You have options as far as leasing, getting a bank loan, or just purchasing equipment, and determining when is the right time to do each can make life much easier for you.

When should you Purchase Equipment?

There are some cases where, if you have the funding, purchasing your equipment can be ideal, and purchasing is considered an option business owners like. After all, they’ve worked hard to get to the point where they own their own business, and they want to own the equipment that runs it.

The benefit of ownership isn’t the only thing you get out of purchasing your equipment, however; you also get to claim the hardware as a business asset, meaning you get funding for whatever equipment you purchase. The catch with buying equipment is the long term downsides to actually owning the hardware; when you purchase equipment, it is rated at a set value, and time affects that value negatively.

Over time, your equipment decreases in value and quality to the point where it breaks, becomes lower quality, or just becomes outdated, and it needs to be replaced. With some equipment, this is no issue: the funds needed are low and the equipment isn’t as vital.

However, with very expensive hardware like fitness equipment and kitchen hardware, paying over and over every few years to own the equipment isn’t very useful.

How can Bank Loans help a Business?

In many cases, business owners don’t have any capital to purchase the equipment for their business, and they’re forced to get some outside funding to get the job done. With a bank loan, depending on your credit you are loaned a certain amount of money and have to pay that back with interest.

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The better your credit score, the lower your interest rate and easier it is to handle your loan, but if you loan too much money even a low interest rate can give you problems.

Handling loans can be easy if you don’t have to pay back too much, but with a high interest rate or high amount of money needing to be loaned, you risk not being able to pay off the loan quickly, putting your business in a world of hurt.

Plus, with a loan you still are buying your equipment, meaning you’ll have to pay again to replace or repair your equipment, so you don’t want your loan to be prolonged too much.

The Interest Rate on Leased Equipment

Many businesses wonder if there really is an advantage to not owning their equipment, and the answer is that it is much more beneficial financially if you have a severe equipment need or you’re just trying to get on your feet.

The fact of the matter is, many businesses will lease at least some of their equipment, because the interest rate on leased equipment is null and the payments are low monthly rates, making leasing much more manageable for a business.

Plus, repairs and replacements of the equipment you lease are handled without you having to worry about paying the full price to get the equipment again, and leasing allows you to get tax deductibles.

Leasing is an effective option for any businesses that need equipment but don’t want to deal with a heavy interest rate or high, up-front payments. To learn more about the interest rate on leased equipment versus loan interest rates, click here.