0% Copier Financing

I did find GMAN's post from 2008 describing a 36 month 0% lease from Konica Minolta but no real details.

I even found that Apple is currently offering 0% financing on a 24 month lease worth at least $5k.

SSG:

I have never seen a 36 month Zero interest lease for a dollar purchase option.

I've heard that the reason there is no real low or zero type of finance lease ($1) because it would be extremely difficult for them to repo a copier that is in someone office or house.

The only way I know to make it work is to fudge the numbers. Meaning you sell the system for MSRP and then offer them a $1.00 purchase option. The leasing company would fund you off of the $1.00 out finance rate. Thus if the selling price (MSRP) was 10,000, the lease cost for 36 months would be $277.77. The leasing company using a rate factor of .0319 would fund you back $8,707.52.

I was thinking more of a FMV lease.

My current lease vendor is working to see if they can structure a lease where I guarantee to purchase the copier at the end of term (I must exercise my first right of refusal)at a higher than normal residual, they will offer 0% Financing.

US Bank is doing 0% FMV.

A lot of confusion around this topic.

The leasing companies have a beat-down coming if they continue to falsely promote their FMV promo rates as "0% leases".

Example, a recent manufacturer promo offered "0% FMV Lease!" for 36 months. But the lease rate for a 36 month deal was .027777.

On a $10,000 machine, the payment was $277.77. The sum of 36 payments, $9,999.72 ($10,000).

Problem? The machine still belongs to the lessor. Assuming that the residual value was 15% ($1,500), plug the following into your calculator and solve for i:

n = 36
pv = 10000
pmt = -277.77
fv = -1500

i = 0.6894, or annual (12i) 8.27%, the actual rate of return on the deal for the lessor.

As to the auto examples, note that those are not 0% leases, they are 0% financing. The manufacturer simply subsidizes the financing.

The lawyers for the auto industry must attend better schools than those who serve the office equipment industry.

As to the original poster, remember that it's not a PERCEIVED extra expense of leasing. It's an ACTUAL extra expense. Leasing costs more because (to many) it's WORTH MORE. Sell the value of technology refresh, fixed cost, simplified accounting, full expensing of payment, etc.

EDIT - If I have a $100,000 house and offer to lease it to you for ten years for $10,000 per year, would you fall for me promoting it as a "Ten Year Zero Percent Lease!!!"? Of course not. And the only difference is the scale of PV, FV, and PMT.

0% Interest financing is a popular financing tool across the board - you see it in the auto industry, furniture, IT (such as your apple example). It has never been a big seller in the Office Equipment industry business due to the business model that the dealers/manufacturers sell with. Many dealers are selling FMV leases (we like the upgrades)and not highlighting to the customer the actual cash purchase price of the equipment. 0% works best when a customer see's a purchase price (let's say $36,000.00 and then has an option to make 36 monthly payments of $1,000). They perceive they are getting a deal because they are being told they are not paying any interest. In reality, Banks do not lend for free and all of us have to make money, so to incent the customer to purchase, the dealer/manufacturer agrees to be paid less than the $36K they quoted. The dealer makes a little less then they hoped, but they made a sale. Chance are to make the sale, you would have sold the $36K machine on a lease for $33K and using your standard rate factor, the monthly payment would have been the same $1000. In the end, it is all marketing.

US Bank/Konica are offering their 0% programs on an FMV lease. I have heard that they are having some sucess on this program, it a good way to differeniate yourself from the competition and it is always a good additional talking point.

You can offer a 60 month 0% if you like, but remember, the longer the term you want to offer, the larger the discount you will have to give to the leasing company. That is the main reason most 0% leases are on shorter terms.

Your leasing company should be able to put together a structure that will work for you, whether it be a $1.00 or FMV program. Just make sure you market it properly and give the proper disclosures (such as the FMV 0%).

If you have any questions, let me know and I would be glad to help you.

Art -
To your post, there is no issue on offering a 36 month 0% finance lease. Even on a $1.00 out lease, the leasing company normally owns the equipment until the lease ends. Even if the lease transfers title when the lease commences, the leasing company still have a security interest in the equipment and can repo it if the customer defaults.

Talking to several SMB business owners the objection to leasing is that they perceive the interest rate to be 15-20%.

When we tell them the actual rate is around 7% because of low current interest rates, the objections seem to fall away.

I appreciate making the differnce between 0% Financing and 0% leasing. I actually want to promote 0% Financing. I do think it might catch a buyer's attention in multiple competitive quotes.

You are right in the copier business we are more so trying to sell the monthly payment and not so much the Purchase price.

Also, I think people wrongly expect with 0% Leasing they own the product at the end of term. They do not.

Here's a recent promo from LCA and special thanx to keith from lca for explaining all of this.

What is the detailed calculation to figure out the actual interest rate on a lease rate?

Take for example, a 60 month FMV term, 5% Residual with a rate factor of $20.92 monthly. $2,501- $5,000 value.

Thanks,

quote:

Originally posted by SalesServiceGuy:
What is the detailed calculation to figure out the actual interest rate on a lease rate?

Take for example, a 60 month FMV term, 5% Residual with a rate factor of $20.92 monthly. $2,501- $5,000 value.

Thanks,

Financial calculator (HP12c)

60 [n]
1000 [pv]
50 [-][fv]
20.92 [-][pmt]
[i] is monthly, 12 [x] is annual

The formula is

PV = FV(1 + i)-n + PMT 1 - (1 + i)-n

i

You can flip the formula around to solve for i, but financial calculator is faster.

In your example, i is .8853 per month or 10.62 annual.

Probably didn't format well, go to "Present Value of an Annuity" here http://people.hofstra.edu/stef...World/Summary10.html

I will go back to school on this one and buy myself a new calculator.

Thanks,

CashGap:

Kudos and it's awesome to have a financial wizard on the forums! Thanx for all your help with this thread!

All of this is fine and good as an intellectual exercise but in my 30+ years I have never answered the question of interest rate. I have been asked for it a lot but unless you have a guaranteed FMV to te customer, you can't calculate the actual Interest rate and evn then you should probably calculate in the forced insurance, interim rent, and a 3-4 evergreen payments as well. Besides, unless they plan on exercising the purchase option, the interest rate doesn't matter and if they do plan on exercising the purchase option, they should probably use their own financing.
What they are buying from you is a monthly payment for a term, just like a rental. When was the last time you asked what the interest rate was on a rental car?

quote:

Originally posted by Old Glory:
All of this is fine and good as an intellectual exercise but in my 30+ years I have never answered the question of interest rate. I have been asked for it a lot but unless you have a guaranteed FMV to te customer, you can't calculate the actual Interest rate and evn then you should probably calculate in the forced insurance, interim rent, and a 3-4 evergreen payments as well. Besides, unless they plan on exercising the purchase option, the interest rate doesn't matter and if they do plan on exercising the purchase option, they should probably use their own financing.
What they are buying from you is a monthly payment for a term, just like a rental. When was the last time you asked what the interest rate was on a rental car?

Absolutely and 100% correct, word for word!!!

Rental car is a much better example than my $100,000 house.

quote:

Originally posted by Art Post:
CashGap:

Kudos and it's awesome to have a financial wizard on the forums! Thanx for all your help with this thread!

As you can imagine, this topic is a pet peeve of mine!!!