Is there such a thing as an interest free leasing deal?

The simple answer is no. After all, thinking about it logically, why would a leasing company provide you with money for free?  Yet some do appear to be offering interest free equipment leasing options. How can this be?

More About Interest Free Leasing Deals

Firstly, most interest free deals are subsidised by either the equipment manufacturer or the equipment reseller. They use this ‘marketing twist’ to entice the customer to buy their stock and are, in effect, offering the customer a blind discount. For this reason, an interest free leasing agreement can – and often does – represent excellent value for customers. And WestWon has run numerous interest free leasing offers on behalf of suppliers, who are looking for a new, modern way to promote their products.

How Does Interest Free Business Equipment Leasing Work?

In simple terms, if a supplier or manufacturer wishes to sell equipment with a capital value of £12,000.00+VAT on an interest free lease finance basis over three years, the lease payment would typically be £1,000.00+VAT per quarter. That equates to £12,000.00+VAT over the course of the whole lease.  So apparently interest free….

However, not quite so … the supplier invoices the leasing company upfront for the equipment as per the normal process, but, in our example, for the reduced amount of £10,500.00+VAT rather than the full capital cost of £12,000+VAT.  The leasing company then bases the lease payments due on the discounted figure of £10,500+VAT, and thus still makes circa £1,500.00+VAT in interest on the deal.  As customers only see the lease agreements they make with the leasing company and not the invoice from the supplier to the leasing company, they are typically unaware of the underlying supplier discount that enables the leasing deal to work.

Is This Type Of Lease Agreement a Good Deal For Customers?

There is absolutely nothing wrong in this type of offer and, in fact, it usually represents excellent value for the customer, who obtains the benefit of the equipment immediately while paying for it over its useful life. The supplier gains a new customer and the leasing company receives interest on the deal as normal.

One thing worthy of note is that technically with an interest free lease agreement, title (ownership) of the equipment should pass to the customer at the end of the lease, so interest free deals are often put together on a lease purchase as opposed to a lease rental basis.

For more information about the best leasing options for customers, manufacturers and resellers please contact WestWon on Tel: 01494 611 456.