This is one of the educational pieces we would rather not have to write. We would always love to say, “you are fine, no worries, we got you covered…” This question of ending a lease early is not one that allows us to give an answer most people are excited to hear about.
What is a Lease?
Before we get too far into ending a lease early, it is good to know what it is for and why it exists. In the most basic way, leasing is simply a method to finance equipment that might be a bit too expensive for a lot of companies to pay cash. What happens is a bank, or leasing underwriter, will fund the copier dealer the full amount of the purchase (because most dealers cannot fund 100’s or 1000’s of businesses at $5,000 to $10,000 each – just 100 such transactions could be over $1 Million dollars…)
Given the problem of limited funds, brings in banks who want a return on their money, so they will essentially give you a loan so you can use the copier for 5 years. When the loan is completed, they get the copier back, but sell it to a wholesaler (banks are not in the copier business, they are in the money business.)
Why Can’t I Just Cancel?
With the backdrop of the bank funding these copiers, the reason is simple, if you were to stop paying for your copier, the bank loses money. They are not lending out this money to lose money. So, say you have a $5000 copier, which would cost roughly $100 per month for 5 years (not an amazing interest rate really). You are at year 2, call it month 20. You have paid $2,000 total. You want to cancel your copier lease. The bank is still $3,000 upside down on the deal. They are not interested in just wiping this away. They already have some defaults that happen due to bankruptcy, etc.
So What Happens Next?
What happens for most people, is they are able to sometimes negotiate away the service portion of their contract for a cost, and then they stop using the copier, set it aside and return it at the end of the term. Why not just return it at month 20, if that is where you are? There is generally an early lease termination fee.
Why Charge Me More to Pay Early?
This is a question we had too years ago. Then, it became clear why there is an early termination fee. Dealers are the people who get the banks these deals. If they simply allowed people to return copiers without a penalty, they could be seriously harming the business of the very people who helped them get the contract in the first place. Remember, bankers are not copier dealers, they are looking for a good risk portfolio. If they started making it so dealers lost clients, then dealers would stop referring them this business.
What About a Buyout?
If you are aggravated or frustrated with your current copier provider, one thing we can do is what is called a lease buyout. Using the example above, it means we would make the bank square by ensuring they get their payments, and then add that cost to your next copier. If you are far enough along in your contract, this can allow your monthly cost to go down even when this gets added. Say you only have 9 months left and the lease buyout is $2700 and your current lease payment is $3000 per month. If you get a new copier for $7300 and add the $2700 due to the bank, that makes a $10000 total which is about $200 per month rather than $300. So yes, it is possible to add a buyout and still lower your lease payment.
If you have any questions about leases and how they work, we would be happy to help you out!
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