Rate is the Bait

Written By: Robb Stevens

If you approach equipment leasing with a wary eye, you’re probably not alone. Some of your past experiences may have even led you to believe that some of the questionable things you’ve seen are “just the way it is.” This may or may not be a fair assessment of the equipment leasing industry as a whole, depending on what you’ve experienced and who you have worked with.

Every industry has buzz words, terminology or nuances that are specific to their craft. These “buzz words” are advantageous to those on the “inside,” and conversely, easily misunderstood or even missed by many who are not in the know. In light of this inherent challenge, an unsuspecting and uninformed consumer may at times be unknowingly taken advantage of.

In the equipment leasing universe, many lessors (those who administer a lease) certainly utilize their own industry “nuances” to take full advantage of lessees (customers that utilize leasing) and in some cases prey on their lack of knowledge or understanding of what they agree to in an equipment lease contract.

The most obvious way a lessor may win over a lessee is by using a low rate to lure them in. With a low rate, and thus an attractive monthly payment, all other offers may pale in comparison. A customer should proceed with caution if a payment seems unrealistically lower than other bids. When a quote seems unrealistically lower than other offers, there may be hidden costs lurking in the terms and conditions of the contract that an unsuspecting lessee may fail to see until after they’ve signed it. These hidden costs can greatly inflate a lessee’s total payout over the course of the lease without them even realizing it.

Hidden Fees

Documentation Fees
$200 - $1,000 or a percentage of the equipment cost.

Origination Fee or Acquisition Fee
1% of total equipment cost.

Down Payment or Lease Deposit
Often expressed as first/last payment due up front.

Payments Due in Advance Rather Than in Arrears
If a buyer is not aware of this one, it could lead to immediate late payment penalty they’ll have to pay to a lessor.

Late Fees and Inflexibility
All leases have late fees of up to 5% of monthly payment, but some lessors are inflexible, rigid or even unfair in how they enforce them.

Interim Rent
Typically a daily charge for use of equipment from the time it is accepted by the customer to the actual start date. This amount is based on the monthly payment divided by a 30-day month, then multiplied by the days between acceptance to start date. Some lessors intentionally delay the start date in order to maximize the interim rent they can charge.

Early Payoff Penalties
Typically a percent of the outstanding balance at time of prepayment or a specified number of months of interest will be billed to the customer.

Evergreen Clause
Auto renewal or extension of a lease payment at end of term if specific notification is not provided by lessee.

Restocking Fee
Could be as much or more than all remaining payments combined.

Fair Market Value Language
Unclear and ambiguous.