Defining Total Cost

Defining Total Cost
Are you in the dark with the total cost of your lease?

When looking for leasing options, there is more to consider than just lease rate factors. These rates alone do not define total cost. The total cost of the lease may include a number of hidden fees that are not clearly disclosed or understood. Because many of the fees are charged at the close of the lease, they might be omitted from your preliminary calculations on the total cost of the lease.

For example, many leasing companies charge hourly overage charges based on utilization ranging from $1.00 to $7.00 per hour. These can add up significantly based on your usage of your equipment. Additionally, inspection fees at the end of lease can exceed $500 per unit and must be done by a qualified maintenance person. But how the lessor defines a “qualified” maintenance person may be unclear and the lessee’s maintenance person may not be qualified per the lessor’s definition. This scenario would lead to burdensome repair costs that would be impossible to predict, especially when lessors take away the flexibility to maintain equipment however you choose. As a lessee, you should have the choice of using a certified maintenance or repair provider of the OEM, using an outside 3rd party, or self-maintaining, along with the choice and flexibility to use OEM or non-OEM parts.

Often times, month-to-month renewal rates can increase significantly at the end of the lease and leases may require both first and last month’s rent. When equipment must be returned, the lessee may also be required to pay outrageous freight charges at lease end. Return provisions can often be onerous and unrealistic like the requirement for returning five-year old batteries capable of holding a charge for eight hours; essentially a new battery. 

Other common challenges to calculating total cost may include:

  • Onerous return provisions requiring the units have no water, oil or hydraulic leaks.
  • Lessee can be required to store off-lease equipment for up to 90 days. 
  • Program lease rates are held for a short period of time. As an example: for a period of 18 months, after which prices are increased. 
  • Administration fees at end of lease are assessed as high as $400 per unit.

Finally, if your lessor does not offer you a thorough asset tracking tool, which notifies you in advance of lease termination dates, it may make it difficult to make timely, intelligent decisions and avoid unplanned month to month rental charges. Without that tracking tool, a lessee must make “all or none” decision based on every piece of equipment on an equipment schedule versus system by system decision making.

Unfortunately, too many lessors also force lessees to take residual value risk by requiring lessees to repay lost residuals when residual values do not perform as expected.

Fortunately for our clients, Pacific Rim Capital does not require any of the aforementioned terms.  We believe in transparency and integrity and will not deceive you with a low monthly payment just to charge exorbitant fees at the end of the lease.  Our world-class team, 30 years of market data, and proprietary tools will make it easy for you to calculate the total cost of the lease. You don’t have to be in the dark when you work with Pacific Rim Capital.