Lease and finance agreements at GreatAmerica are based on lease rates. A lease rate factor is represented as a fraction or multiplier, and is used to quickly calculate a monthly payment.
Unlike an interest rate, a lease rate does not change throughout the term, nor does it amortize. (Meaning there isn’t a separate principal and interest listed that is paid down at different rates.) Instead, the finance charges are fixed over the term, and there is no economic upside to paying off a lease early.
When your customer multiplies the lease payment by the term, the difference between that and the cash price is the finance charge.
For additional information on interest rates, the differences between a lease and loan, and more frequently asked questions, skip down to the FAQ section.
Standard terms on a lease agreement range from 12 - 60 months. As the term increases, the rate will typically decrease.
(+) Shorter terms have higher rates.
(-) Longer terms have lower rates.
The lease rate goes down as the size of the transaction increases.
(+) Smaller transactions have higher rates.
(-) Larger transactions have lower rates.
The lease type influences the rate. FMV agreements have a residual - or amount due at the end - that lowers the lease rate.
(+) $1 Buyout, EFA, and SFA have higher rates.
(-) Fair Market Value have lower rates.
Loyal customers get optimal lease rates. Conversely, it can be expensive for our organization to set up a technology company who finances one customer per year.
(+) Fewer transactions per year leads to higher rates.
(-) More transactions per year leads to lower rates.
Do you have a lease rate, and just aren’t sure what to do with it now? Get an estimated monthly payment using your calculator, info-zone.com, our mobile app, or one of our technology integrations.
If you have ever bought a house or a car, or started a business, you likely have experience with loans. A question you may be wondering is when to lease and when to borrow using a loan?
A loan is ideal for collateral you want to own at the end of the term; something that holds its value past the life of the agreement. A lease is best for something that depreciates quickly - like technology - and will not hold its value past the term.
The most important distinction between a lease and a loan is how the finance charges are paid. In a loan, the interest in amortized throughout the term. In other words, you are paying more interest at the beginning and more principal at the end. Leasing isn't free, but the finance charges are fixed throughout the term and are not paid separately from the borrowed amount.
Features |
Lease |
Loan |
|---|---|---|
Fixed Monthly Payment |
|
|
Risk-Based Pricing |
|
|
Rate Calculation |
Lease Rate = Decimal |
Interest Rate = Percentage |
Amortization Schedule |
|
|
Benefit of Early Payoff |
|
|
Use Case |
Best for things that won’t have value past the term. |
Best for things that will hold their value past the term. |
Term Flexibility |
Most terms from 12 - 60 months. |
Terms may be limited based on asset type. |
Collateral |
Financed Equipment |
Potentially all company assets. |
Technology Included |
Up to 100% financing including hardware, software, and implementation. |
Typically limited to hard assets. Loan may not cover 100% of costs. |
Lease Rate = Decimal
Best for things that won’t have value past the term.
Most terms from 12 - 60 months.
Financed Equipment
Up to 100% financing including hardware, software, and implementation.
Interest Rate = Percentage
Best for things that will hold their value past the term.
Terms may be limited based on asset type.
Potentially all company assets.
Typically limited to hard assets. Loan may not cover 100% of costs.
A “lease rate” is used by finance companies to determine how much they will fund a dealer/vendor for a lease transaction. The “lease 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 lease 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. Applying a rate based on a customer's credit is called risk-based pricing, which is a practice banks use when providing loans.
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. This article breaks down the fees and extra charges you could get on a lease with a different provider, so you know what to look for.
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.
Select a finance partner who specializes in your industry and understands the technology you provide.
You and your customers deserve a transparent provider who will be up front with you and won’t hide fees.
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Say goodbye to auto-attendants and multiple phone transfers. Pick a partner who will provide a team of people who are there when you need them with knowledgeable insight.
Your complex technology solutions and go-to-market strategies don’t have to fit a mold. Choose a partner that will match the way you do business and the way that your customers need to pay.
Your industry is innovating at lightspeed, and you need a partner willing to meet innovation with innovation. From quoting integrations to paperless documentation, select a provider investing in innovation.
