What is Better for Equipment Financing – Fixed Rates or Adjustable Rates?

By | November 10, 2020

We get asked this question all the time – “Are fixed rates better than adjustable rates for equipment financing?” And the short answer is an emphatic YES. Fixed rates are always superior for equipment financing and leasing. 

The reasons are many, but the big one is stability. Knowing what your monthly payment is going to be for the entire term of your equipment loan is important. It allows companies to better forecast and plan ahead; it allows them to set budgets more accurately; and it allows them to know exactly what a piece of equipment will cost.

Fixed rates for equipment financing can also be a hedge against rate increases, which are never well-received. It’s interesting that rate drops are never seen in quite the same light. For example, if I take out a loan, I am obviously ok with the payment. If rates go down a slight percentage, I might say “hmmm, would have been nice if they dropped last month when I financed, but oh well…” and I move on, not thinking about it again.

But if rates rise, and I’m comfortably locked in at a lower rate? Heh, then I’m imagining myself as a financial wizard, and probably won’t shut up about it.

Conversely, adjustable rates are a real roller coaster. Sure, if you get in at the exact right time and rates start falling, you’re going to be happy. But those perfect times are few and far between. And never mind rates rising and your payment going up – that will give any businessperson sleepless nights. 

The bottom line is adjustable rates are risky, and can really hamper a company if they go up. You certainly wouldn’t BUY a piece of equipment from a vendor that said “right now the price is this, but if we feel like it later in term, we’ll raise it to that”… so why would you finance under that same scenario?  

Nope, the jury is back in record time: fixed rates are better for equipment financing. Fletch has spoken. 

Leave a Reply

Your email address will not be published. Required fields are marked *