Leasing v Bank Loan
We are a leasing company and bank loans are often our major competitor when it comes to lending. However, we are aiming to put forward an unbiased view to help you make a more informed decision should you be wishing to buy equipment.
Car leasing v bank borrowing
There are two big factors in favour of leasing when it comes to vehicles:
- There are lots of really good manufacturers deals out there at the moment.
- Car leasing rates are normally cheaper than equipment leasing rates due to the good resale value in the event of a repossession.
If you look at a £20,000 car lease, typically this will be a lot cheaper than a £20,000 equipment lease. Compare this to a bank loan and the difference will be minimal.
Fixed v Variable rate
Often lease repayments are fixed for the duration of the lease, whereas bank interest rates normally go up or down depending on the rate. Realistically, interest rates are not expected to go up much in the next three years, so I do not think this is a real benefit of leasing at the moment.
Lease v Bank Documentation Fees
Often on a bank loan we see a 1% facility fee, sometimes more. A client of ours recently paid a 1.5% facility fee for a one month extension in their overdraft. Annualise this out into an interest rate and it makes the bank loan extremely expensive.
Yearly service fees have just been brought in by leasing companies who wish to make another £40 per year fee income. This is pure profit to the leasing companies, banks will not look to do this on smaller ticket transactions.
Leasing companies normally charge £100 or £150 for a documentation fee. On average, leasing companies are cheaper than banks when it comes to fees. However, if you take into account extra yearly charges leasing companies make, then there is not a lot of difference between bank borrowing and leasing.
Bank v lease Interest Rates
Typically, bank loan interest rates are cheaper than leasing rates for non-vehicle leasing. Please note, we are making reference to smaller leases under £100,000 in value. If you take into account good assets like waste equipment or turf care machines, then there will not be much difference in interet rates.
We would normally see a bank interest rate at 5% and then a leasing rate at 8% for example. However, we also see examples of a bank lending at 4% then a leasing company lending on the same asset at 10%.
So why lease as opposed to a bank loan?
On the face of it, bank loans for equipment under £100, and excluding vehicles are often cheaper than a leasing option. So then, that poses another question, why do companies lease equipment as opposed to taking out a bank loan? Look out for our next blog “Why companies lease as opposed to taking a bank loan?”.
For more information, please contact us on 01494 611 456.