Should I Choose a Fixed Rate or Variable Rate for my Equipment Financing?

Starting and running a business takes hard work and requires owners to be savvy in the way they make big purchasing decisions. One significant choice that impacts your business a great deal is how and where you acquire the equipment to keep your business running smoothly. In any company, cash flow is vital to the health of your business and in keeping your customers happy. It’s incredibly important that you can acquire the right equipment and technology solutions you need without your cash flow suffering. This is what makes equipment and technology financing so appealing for so many companies. 

There are many options out there when it comes to dell equipment financing and technology financing. How are you supposed to know which one offers you the best deal? Our experts at Trust Capital are here to break down the most important factors to consider when choosing where to finance your dell equipment and technology.

Interest Rates

One of the most important considerations when financing anything—especially a big purchase like business equipment—is what type of interest rate to choose for your business financing. There are two main types of interest rates when financing equipment: fixed rate and variable rate. It’s important to know how they each affect your business expenses. 

A quick reminder that Interest is an additional cost you have to pay, imposed by the lender or financier of a purchase. Interest is essentially the additional cost to you for borrowing money from the lender in order to make your purchase. Instead of buying something outright, you’re able to pay off a large purchase over time while getting to have that purchase immediately. Interest costs are calculated using a number of factors: the initial sum of purchase (or the principal), the interest rate, the compounding frequency, and the total length of the repayment. 

In this post, we’ll focus primarily on interest rates because they can have such a huge impact on your business and your monthly expenditures. Knowing how different interest rates affect your business can help you save money and avoid potential pitfalls when financing equipment and technology. 

Variable Rates: The Basics

• Variable-rate interest financing often advertises a lower rate than fixed-rate interest loans, particularly at the beginning of your loan repayment term. 
• Variable-rate interest financing can change during the course of your repayment term - this means they can go up or down depending on the market. 
• Because variable interest rates fluctuate, you don’t know the total cost of your loan repayment. 
• Typically there is a cap on how high the interest rate can get (usually around 30%).

Variable-rate interest or loans can seem alluring at first. Companies that offer IT equipment financing, like Dell, offer variable-rate interest for their account holders. And while it looks good on the surface to go with something like Dell business financing because they’re a household name in technology, there are some things to consider in the fine print before making your choice.

Dell has been a well-known brand in the computer and technology space for decades. Now Dell equipment financing and Dell small business financing is offering customers financing for software and technology purchases. While you know that leasing software, technology, and equipment can be a great business practice to help you stay cash-flow positive, how can you be sure which financing option is best for your business? 

Generally speaking, a variable rate will start low but more often than not, it will increase drastically over time, leading to higher payments and more money out the door. Your overall loan repayment cost will almost always be higher with variable interest rates.

Fixed Rates: The Basics

• Fixed-rate interest never changes for the duration of your repayment terms. This means your monthly payment won’t change when the market does.
• Fixed-rate interest is often advertised as slightly higher than variable-rate interest financing.
• You know the exact cost of the repayment terms. 

At Trust Capital, we only offer fixed-rate interest financing to our clients in order to best serve you. Our staff at Trust Capital is made up of experts in commercial equipment AND working capital, giving us a unique background and perspective when offering equipment and business financing. The business finance and equipment financing options at Trust Capital always include fixed-rate interest for each purchase, and they can include shipping, installation, and training, so you know that you won’t be surprised by any additional costs that you need to keep your business and equipment running smoothly.

With fixed interest rates, your initial payments may be slightly higher than that of a variable interest rate, but your monthly cost will never increase. This allows for consistency in your budgetary planning, and it will absolutely save you money in the long run. You’ll know at the start of your financing exactly how much your total loan repayment will be, and you can rest in the fact that any apparent market changes won’t affect your repayment plan. Your total out-of-pocket costs with a fixed rate with Trust Capital will always be lower than that of a variable rate plan with Dell or anyone else who offers equipment financing. 

Soft or Hidden Costs: Another Consideration

In addition to the fluctuating interest rates that make variable-rate financing a potentially dangerous choice, you also have to be aware of hidden costs and soft costs that can also add up to a surprising, higher monthly payment on your loan. 

When making IT equipment and technology purchases, be aware of promotional offers or free shipping. Dell business financing often offers promotions like discounted products or services or free shipping. Be careful to know how these things can affect your monthly payment. For instance, if you fail to pay off your equipment loan within their advertised promotional timeframe, whatever amount remains on your equipment loan is subject to the current variable rate- which could be much higher than the promotional rate. This means you could end up paying much more for your equipment purchase. 

Another consideration to be aware of are “soft costs” such as shipping, installation, and equipment or technology training. These costs are often not included in a loan price but are additional costs to purchasing equipment that are billed immediately and directly to you, putting extra strain on your monthly cash flow. At Trust Capital, our financing options include these ‘soft costs’ in your loan repayment, so you don’t have to make a large, initial payment in order to receive the equipment you need. In addition to the security and predictability of fixed-rate financing, Trust Capital offers an additional perk: seasonal financing for businesses that have busy and slow seasons. This allows businesses that have seasonally-driven cash flow to tailor their financing to their needs, avoiding a high variable-rate cost during a low cash-flow season.

Why Fixed-Rate Interest Financing Is Best

Now that we’ve covered the basics of variable-rate interest and fixed-rate interest, how do you know which one suits your needs best? Sometimes confusing terms and fine print can be difficult to decode and understand. So we’ve read between the lines to help you understand which options are best for your business needs. When considering the pros and cons of variable-rate interest vs. fixed-rate interest, we think a fixed-rate interest for equipment financing comes out on top. Here’s why:

• You’re Never Surprised – Whether you are a start-up technology company or a small food manufacturer, you need cash to run your business and you need to know how much you have at all times. This is made possible and so much easier by having a fixed-rate for your equipment financing, like with Trust Capital’s rates that are as low as 8.5% right now. Dell equipment financing can range from 17.49%-28.49%, and you’ll never be sure where in that range you’ll fall, so you’ll never be sure what your monthly payment will be. You will never open a bill from your equipment financer and see an unexpected increase in your monthly or overall payment. This consistency helps you plan, keep your business goals in check and gives you peace of mind that your financing will never go up.
  
  
• You’re Likely Going to Pay Less – Even though variable-rate interest financing like with Dell business financing seems cheaper upfront, interest rates often go up, and when they do, you won’t know how much you’ll end up paying in the long-term and you may not be prepared to meet your new, surprising monthly payment. If you can’t meet this new higher minimum payment, you’ll end up accruing more and more interest, which will take you longer to pay off. In order to avoid a lengthier loan than you planned, you’ll end up having to pay way more than the minimum payment, which isn’t exactly what you signed up for.

Final thoughts on choosing a fixed interest rate or variable rate on equipment financing.

In this blog post, we talked about what type of interest rate to choose for your IT equipment financing purchases. Remember no matter what type of IT equipment you're buying for your business don't just assume the manufacture has the best equipment financing option for you. Dell doesn't have the best business finance options for businesses when it comes to buying their own equipment. Explore equipment leasing companies and your local bank even. 

Trust Capital is one of the best and most reliable providers of IT equipment financing and equipment leasing options. To know more about them and Dell equipment financing options, contact (866) 458-4777.