Today’s low interest rates make us more likely to borrow money for the items we need for a successful business. So when we hear a rate quote for a business equipment loan that doesn’t jive with our expectations, the immediate reaction is to find something lower. As consumers, we inherently trust that the “rate” we’re quoted or see splashed on an advertisement is exactly what we’re going to receive. However, when it comes to business borrowing, what you see isn’t always what you get.
At Professional Solutions Financial Services, we get calls all the time from business owners who thought they had a great rate from another lender, but discovered they’re paying much more than they expected.
How could a 7.5% quote from a lender cost you MORE than a 10.5% contract? Here’s the bottom line: The interest rate you were quoted may not be entirely accurate when you confirm the lender’s rate calculation. In other words, considering rate alone can be deceiving. Some lenders omit things from rate quotes to win your business. Also, rate quotes don’t always include down payments, end-of-term buy-outs, or other required fees and payments. All of these items end up costing you money and therefore MUST BE considered.
Here’s another way advertised rates might be unrealistic. Many times the fine print of low-rate finance offers will require you meet certain credit requirements to obtain the advertised rate. If you fall below a desired credit range, you may be charged a higher rate. Disclosures might also state the rate is only for specific equipment or require a minimum financed amount. Before assuming that the rate you see is what you will really get, ask the lender how you can qualify for the advertised rate.
The best way to make an informed, apples-to-apples decision is to compare overall payment quotes and not just loan rate. Ask each lender you’re considering to provide you with a quote based on the same equipment cost and payment arrangement that tells you:
Payment Term (number of monthly payments)
Monthly Payment Amount
Advance Payments and/or Down Payment Amount
Contract or Closing Fees
Interim Rent Amount
End-of-term Buy-Out Amount
Total the amount of ALL payments (payment amount multiplied by the payment term), plus the other items listed above, and compare. Then ask yourself, “Which finance contract will cost me more?” When you boil it down to dollars spent, the “rate” alone may be far less relevant.