Buyer Beware: Avoid ATM Leases
It’s hard to argue with math: 2+2 = 4 and 9 is greater than 3, there isn’t much more to say about it.
The same can be said for many ATM leasing programs, only the numbers might come out to something like: a five year lease at $200/month = paying $12k for a machine with a retail value of $2,500-$3,500* with options and sales tax. Throw in the buy option at the end of the lease and the number could approach $13k.
In fact, even if the lease payments were $100/month, leasing an ATM still doesn’t make sense for most single location business owners as you’re still paying a multiple of the equipment’s value.
Things might be slightly different for a business that needs to purchase 50 machines and wants to mitigate the cash flow impact of 50 $3,500 machines for ~$175k up front vs. $7-10k/month. However, the cost of the lease is still so high that it amounts to extremely high interest financing. For example:
Paying $200/month for a machine with a value of about $3,500.00 comes out to an effective interest rate of about ~68.6%, throw in the 20% of original value buy-back option some lease programs have and the rate climbs to about 72.6%
Pretty nasty interest rates whether you lease one machine for $200/month or 50 machines for $200/month. Even if you got a “group rate” for the 50 machines that knocked it down to $140/month, the effective interest rate is still 48%. Even $87/month isn't a deal as the effective interest rate is 30%.
Now imagine if we were taking about the $2,000-2,500.00 machine most small businesses buy and not a $3,500 one.
Even the $1 “buy out” option at the end of the lease where you buy the machine for a dollar isn’t that great a deal, as you’ve probably already paid the leasing company a multiple of the value of the machine.
Needless to say these leasing arrangements are a great deal for someone, but it’s not the person leasing the machine. So, what to do? There are several options
- Buy the machine outright, because even if you use a credit card or a line of credit, the effective interest rate will be significantly lower.
- Look into free placement programs, as many businesses quality for free placements where an ATM company will place one of their machines at your location in exchange for sharing a % of the revenue with you. It’s an arrangement that is often more lucrative than purchasing a machine and running it yourself.
- But above all else, if you’re offered a lease: multiply the payment by the number of months in the lease term, and if the number isn’t reasonably close to the value of the machine: walk away.
There are other options, but whatever you do, please avoid high priced lease deals.
Now in the interests of full disclosure, yes, ABS offers free placements to qualified businesses and we can sell you great machines at a reasonable price. But this post isn’t about that, because at the end of the day we’d rather you buy a machine or get a free placement from one of our competitors, then get ripped off by a terrible leasing arrangement.
We read and hear about bad leasing deals all the time and the animosity it creates with potential customers hurts all of the ethical companies in this industry; the more good experiences businesses have, the better it is for all of us.
*There are cheaper machines, but we don’t carry them for a variety of reasons.
**Options could include high capacity cash cassettes, extra security features, larger screens, etc.