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Should You Lease or Buy
a Credit Card Terminal?

Retail Credit Card Processing Services

The most often made point about the decision whether to lease versus buy a credit processing terminal is that the lifetime cost of the lease will likely be two to four times the upfront cost of purchasing the same equipment.

In a typical example, you could be faced with the option of paying $500 now to purchase credit card processing equipment, or leasing the same equipment for $30/month for 3 to 4 years. The lease payments over 4 years would total $1,440 - nearly triple the amount you could pay right now to own the swipe machine outright.

The amount is high because the leasing company has to factor into its calculations the possibility that you may default on payments sometime during the lease term, so its risk is considerably higher.

While a purchase would seem the clear choice, there a number of factors that should be considered before finalizing your decision on which way to go in acquiring your credit card processing machine:

Cashflow Considerations: Obviously, if you have the money available to buy the credit card processing equipment outright at the beginning without causing financial strain, you should seriously consider doing so. But if your cashflow is tight, keep in mind that even though the monthly cost of leasing is relatively expensive, not having to cough up a large sum immediately may make financial sense provided the cash you are saving by not having to pay the purchase price upfront can be used in your business to provide a return on that amount that will likely exceed your leasing costs.

Tax Considerations: Generally speaking, with lease payments you'll be able to deduct the interest portion thereof from your taxable income each year. With a purchase, you should be able to take a depreciation deduction annually, but this will be less of an annual deduction than will be available if you are leasing. You should speak to your accountant to quantify the actual numbers.

Legal Title: A purchase will make you the legal owner of the credit card equipment immediately, while with a lease you won't own the swipe machine until you have made the final payment several years from now (and with some leases you may have to make a final 'purchase option payment' at the end of the lease term in order to acquire actual ownership of the swipe machine).

Financial Statements: Your obligation under a lease for the outstanding balance due at any particular time will be disclosed on your financial statement as a liability.

Warranties: You may find that with a purchase your warranty comes directly from the manufacturer of the swipe machine, while with a lease, the warranty may be from the leasing company. However, the leasing company may allow you free upgrades on your credit card equipment at a later date.

Some points about buying credit card equipment

Swipe machines are relatively cheap considering the important role they play for retail businesses and the huge increase in sales revenues they can provide. So it is usually advisable to pay a little more to get the credit card processing equipment that best suits your business needs.

Don't nickel and dime

Try instead to balance higher costs with the expected increase in reliability you should receive. A faulty or slow-running piece of processing equipment can seriously affect your business. If you buy your equipment from the same company that provides your merchant account they will likely program the terminal for you. And, as they realize they will be working with you for hopefully many years, thay have an incentive to be more liberal when negotiating the price of the equipment with you and to ensure you purchase a good piece of hardware. But do your research in any event and ensure you fully understand the warrantty, return policy, etc. before you pay.

If you choose instead to lease a swipe machine, make sure you know - before you sign the lease - the monthly lease amount you'll be paying; any additional payments you'll be required to make such as sales tax or insurance; how long is the lease term; can you cancel the lease before trhe end of the term, and if so, what penalties or other payments will you be liable for; the consequences if you default in your lease obligations; the possibility of paying out the lease early; and whether you can sell or assign the lease should you choose to sell your business.

The bottom line?

Purchase your credit card terminal equipment so long as you can comfortably afford the upfront cost - but if you do lease, ask and get good answers to all your questions before signing. And check out our list of the top providers of retail merchant accounts.

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