What happens if you notice that leasing businesses are raising their fees unexpectedly? What has caused this sudden shift in behavior? Higher interest rates do not automatically imply higher lease rates, contrary to popular belief. Interest rates have not risen sharply since the turn of the millennium; in fact, they have mainly fallen, with a few exceptions.
The lease rate isn’t determined by a single component; it’s determined by a number of variables. A lease vs. buy comparison will assist you in better understanding:
- The leasing firm borrows money at a set rate, but if the lending institution is having financial difficulties, the borrowing rate will be significantly higher.
- What is the lease’s duration? The longer the time, the higher the leasing company’s borrowing rate, which, in turn, raises your leasing charges.
- The residual risk that the leasing firm is willing to accept on the equipment determines a lot. When it comes to technology equipment like laptops and PCs, for example, the danger ranges from 3% to 12%. The rate and your payment will be low if the residual is high.
- How is the resale market for “used equipment” performing? When there is a glut of repossessed and off-lease equipment on the market, the residual drops and your payments rise.
- It’s important to consider the magnitude of the order – how much do you want to borrow? The lower the interest rate, the more money you need.
- How long does the equipment you want to lease have a shelf life? Payments will be cheaper if the leasing business considers long-term assets such as long-term industrial equipment. It also depends on whether the manufacturer offers a lease guarantee, as this can result in a reduced cost.
- Ascertain that the leasing firm is familiar with the technicalities, as well as your industry’s concerns and trends. If that isn’t the case, they may refuse to lease the equipment to you, and you won’t be able to negotiate a lower fee.
- If the leasing business does not depreciate the equipment, you may have to pay a higher rate with a company that can depreciate the equipment.
You can use this interactive calculator to compute the lease rate, but you should also research the current situation of the leasing credit market, since trends can shift at any time.