The two contracts
The equipment lease is usually written by a finance company, not the dealer. The dealer sells the machine to the lessor, and you pay the lessor a fixed monthly amount for a fixed term, most often 36, 48 or 60 months.
The service agreement is with the dealer. It covers toner, parts, labor and service calls, and is billed per page printed (a cost per copy, or CPC), often with a monthly minimum. Paper and staples are almost never included. Color pages cost several times as much as mono ones.
Some dealers bundle both into one monthly figure with a page allowance. It is easier to budget but harder to compare, so ask for the two parts separately.
Lease rate factor and the implied rate
Lessors quote a lease rate factor: the monthly payment divided by the equipment cost. A factor of 0.0217 on a $9,000 machine is a payment of about $195. The factor hides the interest rate, so the calculator works it back out from the cash price, the payment, the term and the buyout. If the implied rate looks high against what your bank would lend at, that is a negotiating point.
FMV or $1 buyout
- Fair market value (FMV) lease. Lower payments. At the end you return the machine, renew, or buy it at whatever the lessor says it is worth. Most copier leases are FMV, because most offices want a new machine after five years anyway.
- $1 buyout lease. Higher payments, and you own the machine at the end for a dollar. It is a loan in all but name, and it usually makes sense only if you will keep the machine well past the term.
How each is treated for tax and on your balance sheet differs. Ask your accountant about it, not a salesperson.
The clauses that cost money
It cannot be cancelled
Equipment leases are almost always non-cancellable. If you close an office or the machine is poor, the payments continue to the end of the term. The service contract and the lease are separate, so an unhappy service relationship does not end the lease.
Automatic renewal
Many leases renew automatically, often month to month or for another full year, unless you give written notice inside a window before the end of the term, commonly 60 to 90 days, and sometimes by certified mail only. Put the date in a calendar the day you sign.
Return costs
At the end of an FMV lease you may have to pack and ship the machine to an address the lessor chooses, at your cost. Ask who pays for de-installation and freight before you sign.
Price increases on service
Service agreements often allow an annual increase in the per-page rate. Negotiate a cap, or a fixed rate for the term.
Minimums and overages
A monthly minimum you never reach is money for nothing. Base it on your real volume: most copiers report their meter readings, so a dealer replacing an old machine can see what you actually print.
A checklist before you sign
- Get the cash price, even if you plan to lease. Everything else is measured against it.
- Ask for the lease and the service contract as separate figures.
- Work out the implied interest rate with the calculator.
- Find the end-of-term notice window and the renewal terms.
- Find who pays for return shipping.
- Check the service rate escalator and the monthly minimum.
- Look the machine up in the copier register: speed, energy use and when it was certified. A model certified years ago may be old stock.
- Get at least two quotes.