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Credit Card Terminal Leasing: Why It Is Never A Good Idea

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Miranda Russell | June 30, 2022

“Credit card terminal leasing is never a good idea. Here's why investing in a credit card reader or terminal pays off in the long run.”
4 min read
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    Leases always seem like an attractive option don't they? Why front the cost of an expensive car for example, when you can essentially rent one for a limited time and save money? Or so goes the argument. However, what if leasing didn't actually save you any money but instead, locked you into a contract that costs more over time than you would have paid for something outright? It sounds criminal, but unfortunately, it's not, and some payment processing companies are the worst proponents of just this sort of scheme.

    What is equipment leasing?

    An equipment lease is a financing contract between you and a leasing company that can be difficult to get out of. It requires you to make financing payments for a fixed period of usually four to five years. Equipment leases can end up costing your business quite a bit. So, if you haven't signed a contract yet, it's worth understanding exactly what equipment leasing will cost you.

    No monthly fees

    So why do processors try to sell you on equipment leasing?

    Terminal leases are a large source of income for many payment processors and some do not even offer a choice for you to do anything but lease a terminal or other components of a POS system. This is often because merchant brokers who proffer these terminal leases receive large commission payments from the leasing company when they sign a merchant up for a terminal leasing program. This means that equipment leases are in the best interests of the processors and the merchant broker reps that peddle them, but not in your best interest as a merchant.

    Why you shouldn't lease a terminal

    The reason why we don't encourage leasing your hardware is very simple-it's just not a cost-effective option. Because leases are often for long periods of time and include steep penalties for early cancellations or breaking your lease, you could be stuck paying an inflated monthly fee for years!

    Why rent when you can own for less

    This saying is very true in payment processing, and here's why: equipment leases usually cost more than buying a terminal outright. As an example, if you pay a $29/month lease that lasts for 60 months you get a grand total of around $1,800. Is your terminal worth that much? Perhaps not, but then if you wish to discontinue using it you will likely face an expensive buyout fee. That's a lot of money to dole out for a terminal that's worth only a few hundred dollars. An average terminal usually costs around $300-$500 (if it costs more than that, maybe look for another payment processor), so it can really help to do your research ahead of time and purchase something upfront that won't cost you an arm and a leg.

    Still not convinced? Remember: You don't own the equipment at the end

    So let's say your business signs an equipment lease, and makes it through a three year term. Now what? Unfortunately you only have two options: return that equipment or sign a new lease.

    Even after potentially paying more than double the purchase price for that terminal or card reader, at the end of the day, you still don't own that equipment, and now for your business to continue operating smoothly, you need to either re-sign, go without, or find a new terminal machine from another processor.

    Continuing to lease creates an ongoing operating cost that you don't want to carry, and going without a terminal is usually not very conducive to running your business. Either way, it's not ideal, so we suggest once more not to sign the lease in the first place.

    What if I'm already in an equipment leasing contract?

    Many contracts last between 48 and 60 months. They can be hard to break - though not impossible. However, you may have to wait until your leasing contract ends to make a move to a new processor.

    If your equipment rental is part of a merchant services agreement with your bank, it may be possible to get out of it.

    Final thoughts

    If you're considering a payment processor that only offers leasing as an option, we recommend you look for another provider. The best option, in our opinion, is to purchase your equipment outright. If purchasing equipment isn't an option right away, then see if you can rent your equipment on a month-to-month basis with a plan to purchase when it makes sense for you.

    Investing in terminals or card readers for card-present payments is an unavoidable part of running a business, but in the long run, it will help you accept more payments and increase your sales. By purchasing your equipment outright, you will own your terminals, so you won't have to worry about an additional monthly bill, you can upgrade whenever you see fit, and you can rest assured you're not being overcharged.

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