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YOUR RATE IS LESS IMPORTANT THAN YOUR PAYMENT.

Simply stated….if you are considering a commercial lease or loan and are comparing rates from competing companies you should ALWAYS (underline, capitalize and BOLD ALWAYS) compare payments as well as rate. Frankly the payment amount is frequently more important than the rate because some commercial finance people may lie or mislead about the rate. There are a number of ways to answer the question….”What is your rate?” and many different answers can be considered correct, or at least kind of correct!

Here’s an example:
Equipment cost is $100,000
Lease or loan term is 60 months
First and last month’s rental or payments are paid in advance
Lease or loan monthly payment is $2,247.07
Rate is 7.28%
Here’s another example:
Equipment cost is $100,000
Lease or loan term is 60 months
First and last month’s rental or payments are paid in advance
Lease or loan monthly payment is $1,993.35
Rate is 7.28%

And here’s one more example:
Equipment cost is $100,000
Lease or loan term is 60 months
First and last month’s rental or payments are paid in advance
Lease or loan monthly payment is $1,969.63
Rate is 7.28%
All of the statements above are true. They all assume a loan amount of $100,000 and they are all calculated at a 7.28% rate.

The first scenario above is calculated using an Add-On rate of 7.28% and the second scenario is calculated using a Stream rate of 7.28% and the third scenario is calculated using a Simple Interest rate of 7.28%. The same rate but the highest monthly payment is $277.44 more than the lowest. Over a 60 month lease or loan that’s a $16,646.40 difference in total payments made. If you were comparing only the rates you would never know that this difference exists and I guarantee you that your lender or broker is not going to tell you because that’s one way they disguise the real cost of doing business with their company.
When comparing lease and loan payments between competing companies always ask for the exact amount being financed, the exact amount of the monthly payment and the exact amount of any advance payments or down payments required. Even if the amount financed ultimately changes comparing monthly payments on the same amount borrowed or financed is absolutely crucial for you to understand which offer is truly the better one from the perspective of rate.
We offer this informational document as our opinion based on over 40 years of experience in the commercial finance industry and suggest that you to use it as a part of your decision making process. As with all important decisions, especially financial decisions, we also suggest that you consider all aspects carefully and consult with your attorney or accountant or other party who is knowledgeable about financial matters when considering entering into a legally binding agreement.

About Charter Capital

Charter Capital is a family owned and operated commercial finance broker. Since 1977 we have been providing businesses just like yours with equipment and technology leases and loans that are right for their specific financing needs. Nothing we do is standard.