You’ve found the perfect C-Arm for your facility! Congratulations! The next step is getting that machine financed so you can start using it.
Unlike mortgages or other tightly regulated industries, medical devices have fewer restrictions on how the loan is set up, which means there are more options available to you! But that can lead to bewilderment and make it hard to compare quotes since virtually everyone offers equipment financing.
Then what should you do? How do you recognize and choose the ‘reasonable financing options’? Do they even exist?
Here are the three most important factors you should use to determine what you’re getting:
- Interest Rate and APR
- Early Payment Term
- Buyout Term
Interest Rate and APR
People believe this is easy since we see it all the time on TV and we know how interest rates work, right? Not so fast! Did you know that interest rate and APR figures can be different? That you can be given an interest rate of 5% but end up paying much higher APR? It’s a common misconception that APR is the same as the interest rate, but nothing could be further from the truth.
So what’s the difference? The advertised, or nominal, the interest rate is used to calculate the interest expense on your loan. The APR not only includes the interest expense, but also all fees and costs associated with getting the loan. This can include, but certainly isn’t limited to, brokers’ fees, rebates, closing costs, and discount points. An APR much higher than the nominal interest rate suggests significant fees have been added.
Always ask what additional expenses are associated with the loan, especially if the interest rate and APR differ greatly.
Early Payment Terms
I have seen many customers who regret not asking about available Early Payment Terms. This is because, with a mortgage, we are taught to pay extra each month to pay off early, and there’s rarely any penalty associated with it. It’s a rude awakening when you come to realize it’s not the same with your equipment loan. Many people plan on paying off their loan early to save money on interest if the equipment financed for business starts to bring in enough revenue. Unfortunately, many financing companies will NOT let you pay off early, or there’s a heavy fine to do so where you’ll essentially end up paying interest for the full term even if you are able to pay off early.
Always ask about available Early Payment Terms. Don’t settle with the simple answer of ‘you can pay off earlyʼ. Ask specifically, ‘can I pay off the principal only early without paying the remaining interest’? If the answer is yes after a certain period, then ask to put that in writing on your equipment financing contract. In my experience, an acceptable period for this can be anywhere from 2 years to half term.
It’s easy to assume after 60, 72, or 84 monthly payments, you own the equipment. Due to how business tax write-offs work, especially with section 179, the majority of the equipment financing is actually leasing. The most popular option by far is a one-dollar buyout, which is essentially the same as financing since you only pay a dollar as the final payment at the end of the term and you own the equipment. The keyword here is ‘optionʼ. Your buyout cost can be all over the place from $100, $5,000, or even 50% of the purchase price! Sometimes, a second loan starts as part of the buyout process, no joke.
Always ask about the Buyout Terms. Accept a one-dollar buyout or something you can easily pay at the end of the term. Make sure it’s in writing within the financing contract.
If comparing loan offers based on interest rate/APR, early payment terms, and buyout terms still have you confused, don’t worry. We’re here to help! We understand the ins and outs of financing and can help you make sure you get the deal you’re promised, the way you expected. Reach out via phone at (833) 838-8380 or send us a message using our CONTACT FORM