How to compare equipment financing offers: APR, term and fees

The monthly payment is the number most buyers look at first. It is also the easiest number to make look good: stretch the term, add a balloon, or deduct fees from the amount funded, and the payment drops while the cost rises.

Start with APR

The annual percentage rate (APR) expresses the cost of financing, including most fees, as a yearly rate. It lets you compare a 36-month offer with a 60-month one, or a loan with a lease. California and New York now require APR disclosure on many commercial financing offers, and good lenders quote it everywhere.

Then check the rest

• Term: longer terms lower the payment and raise the total cost.
• Total of payments: the sum of every payment, plus any end-of-term amount.
• Fees: documentation and origination fees, and whether they are paid up front or deducted from what the seller receives.
• End of term: $1 buyout, fair market value purchase, return, or a balloon payment.
• Prepayment: whether paying early saves interest or carries a penalty.
• Advance payments: whether the first and last payments are due at signing.

Watch the wording

Be cautious with offers that quote only a factor rate, a monthly rate or a “simple interest” figure without an APR. They are not necessarily bad, but they are hard to compare, and California restricts how those terms can be used. Ask for the APR in writing.

A worked comparison

Ask each lender to quote the same structure: the same amount, term and end-of-term option. Then compare APR and total of payments side by side. If one offer’s payment is lower only because its term is longer, you will see it in the total.

For example, $100,000 over 60 months at 9% APR is 60 payments of about $2,076, a total of about $124,550. The same amount over 72 months at 9% APR is about $1,803 a month, but about $129,800 in total. The lower payment costs about $5,230 more. Whether that is worth it depends on your cash flow, and on how long the equipment will last.

Questions to ask every lender

• What is the APR, and what fees are included in it?
• What amount will the seller actually receive?
• Is there a prepayment penalty?
• What do you need from me to fund, and how long does funding usually take after I sign?

Example figures are illustrative only and are not an offer.