Beyond the Interest Rate
When a business secures financing for capital expenditures, it can be one of the largest purchases they will ever make. It makes sense why so much weight is put on the interest rate when it comes time to shop around for a lender. The interest rate is just one piece of the puzzle, though, and the total cost of a loan is affected by much more than just rate.
Every company’s financial situation and business goals are different, which means every company’s priority is different when it comes to financing. Some may put all their focus on getting the lowest interest rate. Others may prioritize the term length. The overall total cost of a loan may be the most important aspect to some. No matter what your priority is when it comes to securing financing, it’s important to keep all aspects of your loan in mind.
The longer your term, the more you will pay in interest. Even if you’re quoted a lower rate with a longer term, you might still end up paying significantly more in the long run. Let’s say for example, you borrow $1 million at a rate of 10% with a term of 60 months. Your total loan cost will be $1,274,823. Compare that to borrowing $1 million at a rate of 8% with a term of 84 months and you’ll see that you would pay more overall — $1,309,242.
Not only could a longer term mean you’re paying more overall, even with a lower rate, but many times banks raise their rates with a longer term. This doesn’t mean you should necessarily choose the shortest term you can, but it’s important to keep the whole picture in mind when looking at your total loan cost.
Imagine you get a quote for a loan, and you’re excited because you were able to get a lower rate than you thought. When you see your total loan cost, though, it’s higher than you imagined it would be. Fees can be tricky culprits that drive your total loan cost higher than you may realize.
The fees charged with your loan depend on your lending institution but could include origination, documentation, termination, commitment, or other fees that are either a flat rate or calculated as a percentage of the overall loan amount. Certain fees also may be nonrefundable, so it’s important to be mindful when reviewing the terms. Some lenders may try to lower the rate by adding additional fees or raising their fees rates in the hopes that you will jump at the lower interest rate. Others also may buy down their rates by inflating the equipment costs. It may look on the surface like you’re getting a better deal, until you see the cost of the equipment is higher than the average price.
The most important part of securing financing — more than the rate, term, or fees — is finding a lender you can trust to be a true finance partner to your business. Not all lending institutions are the same, so knowing what you want from a finance partner can help make the process easier.
United Leasing & Finance is a direct lender, though many institutions are not. Brokers, for instance, facilitate connections with direct lenders, but their services can come at a cost. Brokers add their own charges, generally between 1% and 6%, over and above the interest rate you would ordinarily secure from a direct lending institution, which means broker-assisted loans can result in higher overall costs. That’s why you should always ask upfront if the institution you’re working with is a direct lender.
Another aspect to keep in mind is how committed a finance partner is to your industry. Banks can decide to pull out of an industry and call customers’ loans, forcing them to pay them off or refinance. Not all lenders offer the same financial products either, so you also should make sure the lender you’re working with offers the right lease and/or loan products for your needs. Some lenders will even have additional services or benefits that may provide more cost savings that isn’t reflected in the terms of your loan. We pride ourselves on having many additional benefits for our customers, like in-house titling services, great vendor relationships with exclusive access to inventory and reduced pricing, flexible or seasonal payment options, fleet management services, end-of-life asset disposal, and soft-cost financing.
Our team here at United Leasing & Finance aspires to be a true partner to the businesses we work with. We prioritize transparency and simplicity throughout our entire process so you can see exactly where your money is going, and we’re happy to help walk through your options to find the best fit for you. We’re here to help you make the best financing decision for your needs that will allow your business to succeed and grow.
Founded in 1964, United Leasing & Finance is an independent direct lender committed to providing equipment financing solutions to businesses across the U.S. and Canada. Our experienced team of finance professionals shares a passion for helping businesses grow. We understand every business is unique, which is why we work closely with our clients to create custom financing solutions tailored to their specific needs. With almost 60 years of experience, we’ve built a reputation for being a trusted partner to businesses of all sizes, from small businesses to Fortune 500 companies. Partner with us to see how we can help your business grow.