Equipment leasing is one of the most expensive mistakes that businesses make when setting up credit card processing.
I’ve seen companies pay triple, sometimes quadruple, the actual cost of a terminal through a leasing agreement. And when the lease expires, you have nothing to show for it since the terminal isn’t actually yours.
If you’re considering leasing a credit card machine or you’re currently stuck in an equipment lease, this guide is for you. I’ll explain why leasing is a terrible deal and what alternatives can save you thousands of dollars.
The Problem With Leasing Credit Card Terminals
Most modern countertop credit card machines cost between $150 to $400 to buy outright.
But when you lease that exact same hardware, you could end up paying $2,000 to $5,000 (or more) over the course of a multi-year lease. That’s money taken straight out of your profit margin for a piece of equipment you’ll never actually own.
Beyond a bad deal on the lease itself, these contract clauses can be a sign that your sales rep is attempting to inflate other fees—making your total effective rate higher than it should be.
In short, leasing a credit card machine will increase your overall processing costs. And it’s likely one of many fees that could be removed altogether from your merchant agreement.
How Processors Try to Sell Equipment Leases (and Why Those “Benefits” Actually Hurt Your Business)
Sales reps from processing providers are slick. They know exactly what to say, and they’re very good at their jobs.
To be clear, their job isn’t to help you out. Their job is to make as much money as possible for themselves and the processor. And to do this, they need to find creative ways to add costs to your statements.
So they sell you on “perks” like:
- “No money down!” — This sounds great until you realize you’re paying far more over time. It’s a short-term win for a huge loss over the long run.
- “Low monthly fee.” — $49 per month sounds cheap and affordable. But over 48 months you just paid $2,352 for a device worth $300.
- “Maintenance and support included.” — Modern terminals rarely need maintenance. And if they break, replacement costs are far less than what you’ve already overpaid on a lease.
- “Free upgrades.” — Most processors claim you can upgrade to a newer terminal at any time during your lease. But these upgrades often restart the terms and/or come with additional fees.
- “Payments are tax deductible.” — This is true, but it’s a strange pitch. Buying your equipment outright is also deductible (like any business expense), and it’s much cheaper.
Another misconception here is that leasing is normal for businesses to do, so why not lease credit card processing equipment? Sure, it’s normal for a business to lease an office or retail space. And in your personal life, you might rent an apartment or lease a car.
But payment terminals are such a low-ticket item compared to a car that might be worth $50,000 or a building that would cost $2 million to buy outright.
Can You Get Out of an Equipment Lease?
Getting out of an equipment lease is challenging but not impossible.
If your processor violated any terms of your agreement or failed to deliver promised services, you may have grounds for termination. Some equipment leasing companies will accept a lump sum payment to terminate the lease early, which still might be cheaper than paying the full lease term.
It’s important to distinguish the difference between canceling your equipment lease agreement and terminating your merchant account agreement. Just because you realized that you’re getting ripped off on a hardware lease, it doesn’t mean you should be ending your relationship with the processor altogether.
Get a free audit from a merchant consultant, like our team here at MCC, to evaluate your costs and see what your options are. Whether you can end the lease penalty-free or not, there are still plenty of other ways to reduce your costs on payment processing.
Alternatives to Leasing Terminals and Credit Card Processing Hardware
These are all smarter and cheaper options to consider for anyone who needs new payment hardware:
Buy a Cheap Used Terminal
If cash is tight and you don’t want to splurge for new systems, you can get a used terminal for around half the cost. This is a great option for startups and businesses that need to buy multiple terminals for all checkout stations.
Just make sure the model is still relatively new, and that it supports modern EMV chip readers. It’s not worth saving a couple hundred bucks to risk PCI compliance charges or interchange downgrades.
As long as the terminal doesn’t have any glaring physical defects and it supports tap-to-pay and contactless payments, there’s nothing wrong with buying used to save some cash.
Rent a POS System
You can also look for month-to-month rentals, which is fine for the short term.
Compared to a lease that locks you in for 36 or 48 months, you can cancel a month-to-month rental agreement at any point. So if you’re just getting started and need to save your cash, you can rent for a few months and then purchase the equipment outright on your terms, penalty-free.
Get a Cheap Card Reader
Instead of getting a massive countertop POS system that costs $500+ for each station, you can get a cheap mobile card reader for less than $100.
While these are often designed for food trucks or businesses taking payments on the go, they work equally well for traditional brick-and-mortar businesses, too.
It may not be what you want forever. But you’ll be able to accept credit card payments without spending a fortune on equipment.
Buy Your Equipment Outright
Purchasing a terminal or POS system outright is always going to be your cheapest option.
Yes, you’ll pay more today. But you won’t have cash siphoned out of your account every month on an equipment lease.
To save money here, I recommend starting only with what you need. For example, a brand new business may only need a single sales station right now. As you grow over time, you can always get more. But don’t feel obligated to have the latest, greatest, and most expensive terminal on the market. You can still purchase affordable systems within your budget.
Hidden Fees Beyond Equipment Leases
Equipment leases are just one of the many ways processors add extra costs to your statements. So while you’re focused on avoiding leases, you should watch out for other common junk fees:
- PCI Compliance Fees — Getting charged extra for security standards that should already be included in processing your payments.
- Statement Fees — To cover “administrative costs” associated with preparing your monthly statement, which essentially costs your processor nothing to do.
- Monthly Minimum Fees — Forcing you to pay a certain amount, even during slow months.
- Regulatory Fees — That sound official but are often just processor markups disguised as something from the banks or card networks.
- Annual Fees — A way to squeeze an extra few hundred dollars out of your account without providing any additional value.
We’re just barely scratching the surface here with hidden fees that could be on your statement.
Some processors are way more egregious and apply deceptive tactics like interchange padding (charging you more per transaction and making it seem like it’s coming from the card networks).
If you see Risk Assessment Fees or Settlement Funding Fees on your statements, these are both red flags, too.
All in, these “small” fees can easily add up to $200 to $500 per month in extras—resulting in thousands of overages on the year. And if you’re overpaying on each transaction, that could mean thousands in extra fees every month.
Final Thoughts
Stay away from equipment leases. Despite how great your sales rep makes them sound, it’s a total rip-off that can easily be avoided.
If you’re already stuck in an equipment lease, it’s not the end of the world.
Contact our team here at Merchant Cost Consulting and we can negotiate directly with your processor on your behalf to save money on your processing costs. So even if your lease is iron-clad, you can still pay less to accept card payments without switching providers.