Heavy Equipment Leasing With Bad Credit Vs. Good Credit
Costs to lease heavy equipment are depend on the amount of "risk" involved with the transaction.
It will be more expensive to lease or finance equipment with bad credit than good credit.
Probably half of the people we speak to that tell us they have "bad" credit don't really have bad credit, they have "ok" (but not great) credit, which makes a big difference in financing costs.
By "ok" credit, we're talking 640 or so.
Let's use an example of a $50,000 machine.
What would leasing costs be for 4 years based on good, ok, or bad credit?
Assuming you've been in business a while, here are some examples.
If your accountant looked at the numbers, he or she might tell you the lease is the smarter move.
Here's the difference:
A loan means you own the equipment at the end.
A lease means you'd pay a residual if you wanted to keep the equipment after your last payment.
Leases will have lower payments than a loan, but that's not the reason why they tend to be the smarter option.
On some leases, you can write your entire payments off as an operating expense, which can save significant dollars when looking at your total financing costs.
Let's take the example of excavator leasing. If you leased an excavator over 4 years for $75,000 (owing $7,500 at the end if you chose to keep the equipment), depending on your credit and some other factors, if your credit is pretty good, maybe your payment would be $1,975 a month. Let's assume your tax rate is 30% and break down the numbers.
Remembering that you will still owe $7,500 at the end, meaning you really financed $67,500, your total finance costs after accounting for taxes come out to negative $1,140.
That's pretty good.
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