Lease a credit card terminal?

3 Minutes read

Leasing a credit card terminal, is this a good idea for a business owner? Most of the time, this is a bad idea, because there is no other option provided to the business owner.

Here is why leasing a credit card machine is bad idea. You usually pay 3-4x more than if you bought the terminal, and that is a “reasonable lease”. The lease is non-cancel-able and typically for 4-5 years on average. The sale of the merchant account is based solely on leasing a terminal, not the actual merchant account. Let’s expand on these 3 pitfalls of leasing a credit card terminal.

LEASED CREDIT CARD MACHINES COST WAY TOO MUCH

Cash prices range from a few hundred dollars to maybe $800 to buy a credit card terminal. Let’s take the middle and say a fair price is $600. So pay $600, plus some tax, so $648 @ 8% tax rate, and you own the machine. The same machine on a lease, which you may find at a large bank, $34.95 for 48 months plus tax; it’s yours, plus the buyout. Assume 8% tax, plus insurance $5 per month, your actual payment is $42.75 per month, times 48 payments (months), total for the machine $2,052. That is over $1,500 more than paying cash for the same machine. So what would you do with the extra $1500, marketing, rent, a bonus?

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Pax a920 EMV NFC Capable

 

This example is a real example, and is considered a reasonable lease. However, now days, these leases are being hidden in the processing contracts. We have seen too many companies with 5-7 page agreements or more and the lease tucked into the credit card processing agreement. These are typically, terrible leases. We have seen $299 per month, for 60 months for a credit card terminal. Without insurance or tax or buyout to keep it, $18,000 is the cost for a single credit card machine!

 

 

 

 

NON-CANCEL-ABLE COMMERCIAL LEASE

That is right, you cannot cancel a lease on a credit card terminal, and most require a personal guarantee. So if your business closes,or is sold, the leasing company will come after the person who personally guaranteed the lease. Read your agreements and make sure there is no lease. A legitimate lease will be a separate document with its own terms and conditions. If a leasing company calls to verify a lease, be certain you know what they are doing. Once the lease is verified and the terminal is working, you and your business are on the hook for the payment and term.

OVERESTIMATE OF SAVINGS TO GET THE LEASE

Many times, we have seen “cost savings estimates” from these high dollar lease companies, completely overestimated. One comparison actually said in the fine print, “these are only estimates based on pin debit transactions”. The transactions were credit cards, no pin number possible. If someone is showing you and your business a large savings, but there is some type of equipment fee, that is probably a lease. Ask questions about the agreement.  Get some references at least 3 and call them. If credit card processing is important, take some time to check out what is being told to you and validate it.

Pros and Cons of a credit card terminal lease

Pros for a credit card terminal lease:

  1. Some leases have a warranty if the equipment stops working.
  2. There can be tax benefits to a credit card terminal lease.  Please consult your CPA, as Stillwater Payments is not advocating a lease for tax purposes.
  3. Smaller monthly payment, verses a cash purchase.
  4. $1 buyout lease, allows the lessee to purchase the equipment when the term is up for $1.
  5. Great for larger purchases, such as Point of Sale or multiple smart credit card terminals.

Cons for a credit card terminal lease:

  1. Leases are non-cancel-able for the entire term, no matter what happens to the business.
  2. Leases are exponential revenue generators for the person and company selling it.  They are typically a lose for the merchant buying the lease.
  3. Monthly payments are locked for the term.
  4. Additional fees such as insurance, taxes, and administrative fees may apply.
  5. In an FMV lease or operating lease, there is a buyout to own the equipment.
  6. Leases have been used to leverage monthly savings in order to generate high sales commissions.
  7. Many times lease documents are now included in merchant services agreements.  It makes a lease difficult to identify unless there is separate paperwork from a third-party leasing company.
  8. Why pay 3x-10x more than a cash purchase?

We at Stillwater Payments will only lease a credit card machine to our clients as a last option, if they ask for it.  Leases are not inherently bad.   Point of Sale systems and multiple smart terminal purchases may be easier to finance on a lease verses paying cash upfront.  All equipment comes with our “Infinite Warranty” sm. If you would like more information about how we handle equipment, call us, 877-651-1655.

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