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There are 4 factors that go into the calculation of the leasing interest rate:
- Term (number of payment)
- Present Value (total amount financed)
- Payment and
- Future Value (Residual)
If you don't know these four items, and all four items are not taken into account,
it is impossible to make an accurate comparison of interest rates. Also, if someone
quotes you a rate and leaves one of these factors out, it will make the rate appear
to be lower.
You will need to ask if they are adding the residual payment when quoting the
rate? Are the counting the advance payments or security deposit? This is money
that you will have to pay if you want to own the equipment, so don't you want
this to be calculated in the "rate" that you are quoted?
We have found that the customer really wants to know "how much am I going
to have to pay to get the equipment?" The simplest way to compare is to add
up all the payments that you make. This includes every dime out of your pocket;
advance payments, security deposits, documentation fees, lease payments, purchase
options, etc. Which is the lowest?
What this example is trying to show is that, if your goal is to acquire and
own a piece of equipment, when deciding which financing option is best, one must
compare all the relevant factors. Take a look at how much money you are paying
in total. These include: advance payment, security deposits, down payments, documentation
fees, monthly lease payments, and purchase options. Chances are, when you add
all of these items up, you will probably pick the lowest total amount of money,
regardless of whether it was the cheapest "rate".
The second most popular question is "Is there a penalty to pay this
off early?"
The common answer is no, there is no penalty. While this is true, the answer
can be deceptive. There is no penalty because you will never be charged more than
your contracted payment amount to pay the lease off early. What people want to
know is will it save me money to pay it off early.
Each finance company we work with has their own policies regarding paying off
a lease early. They will not disclose their individual formulas to us. OBL will
call the financing company to get an early payoff quote from them and will call
you back with that amount. As best we can tell, most companies will multiply the
remaining number of payment times the payment amount to receive the total still
owing on the lease. They will then take this number and discount it back by a
percentage (usually between 3% and 10%).
For example, you have a lease with 15 payments remaining with the payment amount
of $450.00 per month. The total still owing is $6,750.00. If you get a 7% discount
off of this total, your savings would equate to $472.50.
To answers for individual questions or to discuss an individual application,
please give us a call at
800-772-7180 or visit our Contacts page or
application page to submit.
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