Equipment Financing Rates Explained

A “rate” is used by finance companies to determine how much they will fund a dealer/vendor for a lease transaction. The “rate” is a fraction presented as a decimal, the numerator of which is the amount of the monthly payment and the denominator of which is the amount the finance company pays the dealer/vendor for the equipment. For example, if a lease contract calls for 60 monthly payments of $217 each and the lease rate is .02170, then the finance company would pay the vendor $10,000 for the lease ($217 ÷ .02170 = $10,000).

Simply take the rate and multiply it by the dollar amount of the technology you are leasing, and you get to the monthly payment. 

We get this question a lot because you realize you can’t use somebody else’s money for free, and you’re right! The challenge is that interest rates don’t apply on leases because that implies there is a principal amount – which a lease doesn't have. Rather, each payment is a rental payment that compensates the owner of the equipment (leasing company) for use of the equipment. Similar to an apartment rental, the lessee pays an amount to the owner in exchange for use of the owner’s property.

Your customers could compute what they believe to be the interest rate if you gave them the cash price as well (which we don’t recommend) but it still isn’t an interest rate.

On a $1 Purchase Option lease ($1 Buyout), your customer has the right to purchase the equipment for $1 at the end of the term. If your customer needs an interest rate on a $1 Purchase Option for tax reporting (e.g. income tax), the Internal Revenue Code provides a table of imputed interest rates.

On a Fair Market Value (FMV) lease or rental agreement the concept of interest doesn’t apply. Why? Because the lease structure is not intended for the customer to own it at the end, but use it throughout the term.

No. The result of our customer credit check does not influence the lease rate, rather it only determines whether or not we will underwrite the transaction.

The fees charged throughout the agreement depend on the finance company. Some companies will charge a lower lease rate, but make up for it over the term of the agreement in fees, while other companies charge a higher rate and don’t nickel-and-dime your customers throughout the lease term.

Generally speaking, your customers who finance with GreatAmerica can expect a one-time origination fee. Additional fees that might be assessed include late fees for past due payments, and insurance fees if proof of insurance is not provided.

You deserve a predictable lease rate schedule, so we go to great lengths to reduce rate volatility. We review our rates every year, but don’t change them during every review. Lease rates can be impacted by expectations of future rates, which are typically driven by the overall U.S. economic outlook as well as market expectations set by the Federal Reserve policy.