Rip Off Leases

June 3, 2009

June 3, 2009

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This article originally appeared on informed-merchant.com, a blog started by one of our founders, Sean, before he started FeeFighters. One of the ways the merchants can get ripped off in an extreme way is by leasing credit card processing equipment (note, this is not an issue for online-only merchants).  Fifteen years ago credit card terminals were really […]

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This article originally appeared on informed-merchant.com, a blog started by one of our founders, Sean, before he started FeeFighters.

One of the ways the merchants can get ripped off in an extreme way is by leasing credit card processing equipment (note, this is not an issue for online-only merchants).  Fifteen years ago credit card terminals were really expensive ($1000s) and were typically leased by the Merchant Account Provider (in those days they were actually banks) to the merchant.

Now, credit card terminals only cost a few hundred bucks but unscrupulous Merchant Account Provider Salespeople will often still try to lease them to merchants at absolutely usurious terms.

For example, a typical lease (for a machine that costs $200-$400 at Staples) may cost $20 / month and last 48 months (4 years). That amount, $10 / month, doesn’t sound bad, but over the course of 48 months adds up to $960, or more than 4 time what the machine would have cost you outright.

What would a fair price be to lease the machine over 48 months? Well, given that you don’t actually own it at the end of the lease and will need to lease another one (nowdays credit card terminals are pretty durable and last for many years), you should be paying no more than the value of the machine and a reasonable interest rate.

  1. Value of the machine = $400 / 48 =  $8 / month
  2. Reasonable interest rate (8%) —->  Average balance $200 ($400 / 2),   monthly interest rate = Annual interest rate / 12 = 8% / 12 = 0.67%,  monthly interest = $200 * 0.67% = $1.33
  3. Total Cost = $9.33 / month

Do yourself a favor and do the math before signing an equipment lease, they usually aren’t a good deal.

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