Reduce Your Lease Term – Keep Your Equipment Fresh
It isn’t necessarily in your best interests to go for the longest term lease. It’s true that the payment is less on a longer term lease, but it may cost you a lot more than you intended. The reason is simple. The longer you commit to keeping a piece of equipment, the less satisfied you will likely become. For instance, its difficult to keep a copier five years (60 months) and have it working satisfactorily. After all, these things get worn and run poorly. Conversely, if you reduce your lease term to three or four years, you will have a better chance of having equipment that still works at the termination of the lease.
Why Not Swap Out the Old Lease for a New One? That’s what a lot of people do. Unfortunately, fixed asset leases are non-cancelable. Lessees’ Advocate offers information on leases from a non sales perspective. Since the lease is non-cancelable, the only option is to buy out the remaining payments. You can do this by rolling the payments and other fees into the next lease, but it will add more cost than if you were able to keep the lease in tact and see it through. It’s important to understand that leasing is not computed on simple interest, like a car loan or mortgage. The declining balance principles of simple interest loans do not apply. You literally pay for the whole lease, whether you give up the equipment, pay it off early or upgrade the equipment. This makes the option of upgrading a lease that was too long to begin with, a very expensive proposition. Had the initial lease term been reduced to a more manageable time frame, the total cost would be much less. However, many people choose the lowest payment and go through the very scenario I just gave.
When You Reduce Your Lease Term, You Can Save A Lot of Grief
Ideally, you would like the equipment to run fine on the last day you intend to keep it. That is unlikely to happen in the longest lease term offered. I’ve seen it a thousand times, if I’ve seen it one. A five year copier lease about 75% of the way through the lease, just can’t do the job anymore. You can argue that it should last as long as the lease, but that won’t make it any better. The lease is still non-cancelable and the leasing company has every right to their money. Did you know that virtually every lease has a clause about no implied or expressed warranty. It’s actually permitted by the Uniform Commercial Code, Article 2 that governs commercial leasing in most states. What that really means in practical terms is that you stand a snowball’s chance in a very hot place to when a law suit based on the equipment not lasting for the term of the lease. It’s not the theme of this post to dive into that further, but talk to any seasoned business contract lawyer and you will find out its true. As I stated, you can reduce the grief….just reduce your lease term.
Most Dealer Reps Will Pressure the Customer to Upgrade Their Lease Early
This is just a fact of any industry where equipment or even vehicles are leased. As the lease draws to a point in the term where the buyout seems manageable to the rep, she tries to get you to “let her” help you out of the “old” lease. That can be tempting, but its a whole lot more tempting if the equipment you leased no longer does it’s job without a weekly visit from the technician. Chances are that if you are dissatisfied with your present equipment, you’ve demanded a replacement. So, the dealer sales rep knows your problems and recognizes where to pin point their attack to get you to cave in to the upgrade. At some point, there just may be no choice but to upgrade. Had you elected to reduce your lease term in the beginning, odds are much better you would not be in this predicament.
A Shorter Lease Term on a Refurbished Machine May Better Suit Your Situation
Its difficult to explain to people who are used to “buying” a payment, the value and merit used equipment often has. The reason for this difficulty is that a reduction in the term by 40% often yields only a slightly less payment on the refurbished equipment. For example, suppose I offered a new Sharp MX M356N for $6500.00 cash or lease for $130.00 per month over 60 months. On the other hand, as an alternative I offered a low mileage Sharp MX M453N for $3395.00 or lease for $109.00 per month for 39 months. As you can see, the payment on the “used” 45 page per minute copier is only $30.00 per month less than the brand new one. Yet, its almost half of the cash value. However, the new one is a five year lease. This illustrates the point that when you reduce your lease term your payment may not change as much as you might think. In order to earn the business on the refurbished machine, I guarantee it for the full 39 months. This is provided that it is kept under our maintenance agreement. The other thing to consider is the technological difference and how that may be in three years or 5 years. You simply wouldn’t choose a machine today that doesn’t meet up to your expectations. So, knowing that either a refurbished machine of your liking or a new one that is very similar in function, match up to today’s technology, does not guarantee them for the future. That stated, would you rather look into the future three years or five years.