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Technology leasing or rental—before you recommend it to customers, understand the fees involved

November 09, 2020

Technology leasing or rental—before you recommend it to customers,  understand the fees involved
It’s no wonder many technology buyers prefer to lease or rent. This allows them to avoid paying for technology that will reach end of life before they finish paying it off and ensures they’re operating with up-to-date equipment.
 
Before recommending technology leasing or rental to your customers, it’s important to understand what’s involved. Here’s some information to help simplify things:
 
Calculating monthly lease payments
Monthly lease payments are a combination of equipment cost, lease rate and desired monthly payment. To help you determine the lease rate and the ultimate cost to your customer, Ingram Micro Financial Solutions has monthly payment calculators that can be integrated with several CRM platforms.
 
Calculating the lease rate 
A lease rate is calculated using:
 
  • Equipment/software type (computers, phone systems, etc.)
  • Lease type (an operating lease or a finance/capital lease—the latter allows the customer to consider the equipment part of its holdings while the former doesn’t)
  • Transaction size (cost of equipment)
  • Term length
  • Lifespan of equipment/software
  • Cost of sales agreement
  • Cost of operations (overhead cost)
  • Cost of funds (finance companies typically borrow money and the associated interest fees are used to determine the cost of funds)
 The cost associated is determined based on data that identifies the cost to the leasing company.
 
The dreaded “additional fees”
Fees may vary depending on the terms of the lease, but should never be lumped together in a single line item. Instead, the costs should be broken out for customers so they know exactly what they’re agreeing to when they sign a lease.
 
Here are some fees to look out for before your customers sign their agreement:
 
  • Origination fee. Sometimes called a documentation fee, this covers costs associated with the credit review and filing fees. It’s a set fee regardless of the size of the lease and varies from a few dollars to $350.
  • Interim rent. This fee covers the cost of the equipment from the installation/delivery date at the customer’s location until the start of the lease payment. Rather than pay this cost upfront, you could opt to have it wrapped into the leasing agreement for your customer.
  • Insurance fee. Similar to why you buy home insurance, finance companies need to make sure the equipment leased is protected in the event of physical loss. Like mortgage companies, technology financing companies wrap the insurance premiums into the monthly lease payments. But be aware that some leasing companies add an additional fee on to the insurance cost.
  • Property tax administration fee. Many states and counties require businesses to pay property tax on equipment purchases. Depending on local law, the tax may be required to be paid in full when the technology equipment is acquired and may either be the responsibility of the leasing company or the end-user lessee to file and pay the tax depending on the type of lease. Customers should be aware that some leasing companies charge an additional fee to file and pay the tax. Depending on the fee, it could add up to several hundred dollars over the life of the lease.
  • Payment-related fees. Like other bills, leases are subject to late fees and/or returned check fees. It’s important to make sure the fees are reasonable so speak up if they’re not. We have seen some companies charge inordinate fees up to 15% of the amount due.
  • State-specific fees. Your customer may live in a state or county that requires additional fees such as a documentation stamp fee or a local option sales tax. The leasing company has no control over these fees and money collected is sent directly to the state or county.
What happens at the end of the lease? 
At the end of the lease agreement, you’ll want to be aware of additional fees that may be incurred. More importantly, it can impact the customer’s future technology decisions. Remember, customers opt to go with a rent or lease option partially because of the predictability of the monthly cost in their budget. When customers encounter unknown fees or clauses at the end of the lease, it may negatively impact their ability to upgrade technology. 
 
End-of-lease potential costs to review BEFORE signing a lease agreement include:
 
  • Residuals. Customers with a fair market value lease have the option to purchase the equipment at the end of the term. The amount paid is called the residual. Some companies use the residual as a way to drive down the cost of monthly lease payments. They do this by leaving a high residual referred to as a balloon payment.
  • Restock fees. With a fair market value lease, your customer also has the option to return the equipment to the leasing company. In that case, the leasing company may charge a restocking fee to recuperate the cost they’ll incur selling the equipment to a remarketer.
  • Evergreen clause or locked-in renewals. With an “evergreen clause” the leasing company automatically renews the lease agreement upon expiration unless the customer contacts them in advance. Depending on the terms of the lease, this may be extended anywhere from a couple of months up to a year or more.
Select a trusted leasing partner
The leasing partner you select for your managed services customers ultimately becomes an extension of your company and reputation. It’s important to select a partner that offers a level of customer service that meets or exceeds your own. Review sample lease agreements in detail and watch for unnecessary extra fees.
 
Ingram Micro Flexible Payment Solutions (FPS) would like to be the partner you choose. We offer transparent financing options and outstanding service and follow-through. To learn more, contact us at financialsolutions@ingrammicro.com.