Stop Leasing Credit Card Processing Terminals

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Why a business should never lease or rent credit card processing terminals.

Establishing a merchant account and understanding processing rates, fees and rules is complex enough when setting up a merchant account with a credit card processor.  However, another area that is equally important when setting up a merchant account or changing credit card processors is the equipment (machines and/or terminals) needed for your customers to swipe their cards for payment. 

You would think this is straight forward, but it is not.  At some point a business owner is always faced with the decision to either purchase or lease the credit card processing terminals they will need to accept payments.  If you have done any amount of research on this topic you will come across hundreds of online articles that try weigh the pros and cons of purchasing or leasing credit card processing terminals.  The bottom line is it is never a good idea to lease a credit card processing terminal. Always purchase them outright!

Aren’t credit card processing terminals expensive?

No. Most of the popular counter-top credit card terminals made by Verifone and Ingenico have a wholesale cost between $100-$300.  These same terminals would typically retail to a business for between $200-$400 per terminal.  As you can see a basic counter-top terminal is inexpensive and should always be purchased, not leased. 

If a business were to lease a terminal that had a retail cost of $250 per terminal they would end up paying almost 4x the retail cost after they are done paying on a 36-month lease.  You may be asking yourself how is that possible?  We are seeing most credit card processors or agents offering businesses a lease of close to $29 per month for 36 months.  That totals $1,044 ($29 per month x 36 months = $1,044) for the same equipment you could have purchased and owned for $250. 

Don’t fall for the scare tactics.

Often times business owners will ultimately get pushed into leasing because of scare tactics.  They will be told by sales agents that if they purchase the credit card processing machines rather than leasing them then if the terminal needs to be repaired or replaced due to damage then they will have to pay for it out of their pocket. Based on statements made by sales agents about the business owner having to shoulder the cost of repair or replacement on purchased equipment you might think the opposite would be true under a lease arrangement, but it is simply not true.  Under a typical lease arrangement equipment would not be replaced or repaired at $0 cost.  However, some leases provide other “add-on” riders (for a cost and mark-up) that allow for a business to pay a deductible to get a credit card processing terminal repaired or replaced under a lease arrangement.  These “add-on” riders often have many names, some of which are: “loss and destruction insurance” or “warranty insurance”.  In the end, these riders are costly to “add-on” to a lease and most of the time still require a business to pay some type of fee or deductible to use the benefits of the add-on riders in addition to monthly cost of these riders.

The business will own the equipment at the end of the lease.  Not so fast.

Another issue with a lease is most people are under the impression that at the end of a 36-month or 48-month lease that they will own the equipment that is being leased.  This is simply not true.  Most leases that are signed in the credit card processing industry for processing terminals and/or machines allow for the equipment to be purchased by the business at the end of the lease term for fair market value.  Sometimes the fair market value can be almost as much as if the business would have purchased the equipment at retail cost in the first place. 

Maybe equipment should be rented instead of leased.  Again, not so fast.

A third option for equipment choice has been available from most credit card processors and sales agents for some time.  This option is to “rent” the equipment directly from the credit card processor or sales agent.  This is never a good idea.  Much like a lease, a business owner often pays many times over the retail purchase price for the equipment and the credit card processor and/or sales agent owns the equipment and will still often charge a business a fee to repair or replace damaged equipment.  Finally, equipment rented from processors or sales agents is often refurbished equipment that is usually purchased for less than $100 per terminal.  Refurbished equipment can result in more frequent repairs or replacement during the rental period.

What you need to know when you purchase equipment.

If you have read this far, by now hopefully you understand that a business should not “lease” or “rent” its credit card processing equipment.  The only financial savvy option is to purchase the necessary equipment outright.  However, even when purchasing equipment outright, you still need to be aware of the cost of the equipment offered by the credit card processor and/or sales agent and compare the price for the same equipment to other vendors.  Often times processors and /or sales agents still add-on a significant mark-up.  Don’t be fooled by sales tactics that are used to try and justify the high mark-ups on equipment such as fees that are necessary to load software and/or encryption keys.  Software and encryption key downloads are very simple and don’t justify hefty mark-ups.  If you find the same equipment cheaper online, then present the cheaper price to your processor or sales agent and ask them to match the price.

What about “Free” equipment?

Finally, the most popular option offered by very aggressive processors and/or sales agents is to offer “free equipment”.  Well, we all know nothing is “free”.  Since free equipment offers come in many different shapes, sizes and levels of complexity, which most usually result in expensive long-term processing contracts we decided to dedicate an entire future article to the topic of “free equipment”, rather than try to squeeze a paragraph in this article.  This is often one of the most misunderstood areas in credit card processing equipment and is used as a marketing gimmick to charge businesses high costs and extra fees.

You wouldn’t pay $29 per month for 36-months for a total cost of $1,044 for a $250 iPad, so why would you pay $1,044 for a $200 credit card processing terminal?