It's that simple. The article below will provide plenty of reasons why you shouldn't lease a credit card machine, and this page from the Attorney General of NY involving a large leasing company is further proof.
Credit Card Machine Leases are Nonsense!
Thankfully, the practice of leasing credit card machines has been declining in recent years, but some processors just can't seem to let the cash cow go. Leasing processing equipment is a big money maker, and processors with questionable business practices will ride the gravy train to the end of the tracks. An experience we had here at CardFellow will give you an idea of just how much money a processor can make by leasing a credit card machine. We helped a dental office that was paying $45 a month over four years for a PIN pad that they could have purchased for $90. They're paying $2,160 for piece of equipment worth $90. The monthly lease amount paid for the PIN pad in just 2 months, but the office had the lease (with the monthly payment) for another 46 months after that. The processor is making a profit of $2,070! We would have loved to post the name of the processor, but the dental office asked us not to. Please post a comment below to let us know if you're stuck in a lease. We're more than happy to give processors willing to lease equipment some negative press. The exact amount that the processor charges for the equipment you lease will vary, but whether you overpay by a little or overpay by a lot, you'll still wind up paying more than you need to for equipment. In another real-world example, we saw the statement from a business paying more than $1,500 over 4 years for a machine that costs a few hundred dollars. Save yourself the money and avoided leasing.Benefits of a Lease (According to Processors that Lease Equipment)
The term beneficial lease is an oxymoron when referring to processing equipment. Regardless, let's look at the benefits of leasing as provided by processors that lease equipment.No Initial Costs
Well, this is certainly true. A lease does not typically require an initial investment, which is why it appeals to small businesses with tight budgets. So it's true that there is no initial cost with an equipment lease. Instead, it drains your bank account over a period of two to four years, in the form of that monthly payment. If possible, consider borrowing a few hundred dollars from a friend or relative if this is your main motivation for leasing a machine. If that's not an option, some processors will offer low-cost machine rentals, which usually have more forgiving terms and can be cancelled.Fixed Monthly Payment
They're right again. Leases do typically have fixed monthly payments, which again can be beneficial to small businesses trying to minimize the volatility of shifting payments. Of course, a single fixed payment of $200-$300 (to purchase a machine outright) is a lot more financially attractive than 48 payments of $50, which is what you'll often end up with when leasing. If you can swing the initial investment, it's always going to be the better option.Future-Proof
This selling point is always a headliner when it comes to leasing. After all, technology is moving so quickly that your terminal will be obsolete in a year or two. Right? Wrong. Modern terminals will be functional for quite some time. Even if you have to purchase a new terminal every five years, you're still paying much less than you would have if you went the leasing route.Lease Costs are Tax-Deductible
Of course they are, but so is the cost to purchase a terminal. This one is laughable and not a good reason to justify leasing a terminal. If a processor or leasing equipment company tells you this, they're hoping that you'll just go along with whatever they're telling you."It's Not the Agent, It's the Processor"
This is a lame excuse. The organization selling processing services, whether a direct processor or an ISO, has the ultimate say in what is and isn't an acceptable practice. Some two-bit agent using their processor as an excuse to lease equipment is one you should throw out of your store or office. Agents and ISOs earn (a lot) of commission by leasing equipment, and any willing to do so is simply looking to pad their profits. Look at First Data Global Leasing, for example. First Data has thousands of ISO and agents, and their leasing program is available to any that want to use it. However, many prefer not be associate with gouging their customers on equipment costs.Getting Out of a Credit Card Machine Lease
Unfortunately, lease agreements are typically water tight. You'll have better luck getting out of a straightjacket than a lease agreement. The best thing to do if you're stuck in a lease is to read your agreement carefully to determine how much notice you have to give to cancel your agreement. Once you figure out the date, set a reminder so you don't miss it. And forget about buying your equipment at the end of the lease. Most leases have a fair market value clause that would make you pay more than the terminal is worth. Not to mention that processors usually sell equipment at or near cost with a new credit card processing account. There is some good news, though, if you're looking to break your lease because you want to switch processors. A lease agreement is typically separate from a processing agreement. This means that you can cancel your merchant account agreement without having to cancel your lease agreement. Many credit card machines such as those made by Verifone, Ingenico, and Nurit are universal and can be reprogrammed to work with different processors. If you have a universal machine, you can ditch your current processor, continue paying on your lease, and use the machine with your new processor. While you'll still have the equipment lease, you may be able to save on your processing costs, so it's better than nothing.Lawsuits and Legal Proceedings
A piece by NBC Connecticut highlights how some small businesses have to deal with lawsuits as a result of their leases. The article (and lawsuits) are about deals between Lease Finance Group and its parent company Northern Leasing Systems. NBC reports that as many as 33,000 lawsuits were filed by Northern Leasing Systems in New York state, with another 4,000 by Lease Finance Group. The article also points out that to defend the lawsuits, businesses would be required to travel to New York, resulting instead in many people settling instead. If you are in a contract for an equipment lease and get threatened with a lawsuit, always contact a legal professional to fully understand your options.Options Besides Leasing
Of course, the best option is simply purchasing your equipment outright. However, for some small businesses, especially ones looking to purchase full POS systems or machines that may cost a little more, it can be difficult financially. In that case, consider alternatives, such as: Renting machines. If your processor has options to rent a machine for a low monthly cost without a long-term contract, that can be an option that will get you the machine without locking you in to a bad deal. Be sure to read all fine print. Look for used terminals. Businesses that are closing may be willing to offload their terminal for minimal cost. Check with your local chamber of commerce, auction house, or online to look for used terminals for discounts. Just be sure to confirm with your processor that the machine can be reprogrammed before you purchase it and ensure that everything works as expected. Start with a more entry-level device until you can purchase the next one outright. If a few hundred dollars for a basic countertop terminal is too expensive, consider a headphone jack or Bluetooth card reader connected to a smartphone or tablet. These "mobile readers" are often the most inexpensive options to accept cards and will get you started until you have the funds to purchase a countertop machine.
Ben Dwyer
Ben Dwyer began his career in the processing industry in 2003 on the sales floor for a Connecticut‐based processor. As he learned more about the inner‐workings of the industry, rampant unethical practices, and lack of assistance available to businesses, he cut ties with his employer and started a blog where he could post accurate information about credit card processing. As the blog gained in popularity, Ben began directly assisting merchants in their search for a processor. Ben believes in empowering businesses by providing access to fair, competitive pricing, accurate information, and continued support. His dedication to transparency and education has made CardFellow a staunch small business advocate in the credit card processing industry.
