Equipment Lease True Cost & Money Factor
A low monthly payment can still hide a high effective rate — estimate the real cost before you compare offers.
Last reviewed: May 26, 2026 by the BizLeaseCheck Editorial Team
General information, not legal advice.
Overview
Equipment finance is often sold on the monthly payment, not the rate. To compare offers and to bank financing, translate the deal into an estimated effective interest rate and total cost.
A few simple calculations expose what the payment hides.
Topics to check
Start with the total of payments (monthly payment times the number of payments, plus any down payment and end-of-term buyout) versus the equipment cost. The difference is your finance cost. Then estimate the effective interest rate over the term, accounting for advance payments and the residual.
For leases quoted with a "money factor," multiply the money factor by 2400 for a rough annual-rate equivalent.
Documentation, origination, UCC, and property-tax administration fees raise the real cost, as does an FMV buyout or an end-of-term residual. Advance payments (first and last due at signing) also increase the effective rate because you finance less than the full term’s use.
A true comparison includes every dollar in and out across the life of the deal, not just the headline payment.
Once you have an estimated effective rate, compare it to a bank equipment loan or an SBA loan, which are often cheaper for established businesses. The convenience of vendor financing can carry a premium that is only visible once you compute the rate.
If the effective rate is far above bank financing, the speed may not be worth it.
Usury (Cornell LII Wex)Key takeaways
- Compare total of payments (plus buyout and fees) to the equipment cost.
- For a money factor, multiply by 2400 for a rough annual-rate equivalent.
- Fees, the residual, and advance payments all raise the effective rate.
- Include every dollar in and out across the deal, not just the monthly payment.
- Compare the effective rate to a bank or SBA equipment loan.
Official resources
Legal-review notes
Guide confidence marker: Medium confidence.
- Rate estimates are illustrative; the exact figure depends on payments, fees, residual, and timing.
- Usury limits generally do not apply to true leases; characterization and applicability vary by state.
Frequently asked questions
How do I find the interest rate on an equipment lease?
Compare the total of payments (plus any down payment, fees, and end-of-term buyout) to the equipment cost to get the finance cost, then estimate the effective rate over the term. For a quoted money factor, multiplying by 2400 gives a rough annual-rate equivalent.
Why is the effective rate higher than it looks?
Because fees, the residual or buyout, and advance payments (first and last at signing) all add cost while you finance less than the full term’s use. The monthly payment alone hides these, so compute the full in-and-out cost.
Is vendor equipment financing more expensive than a bank loan?
Often yes for established businesses. Vendor and lease financing is convenient and fast but can carry a premium that is only visible once you estimate the effective rate and compare it to a bank or SBA equipment loan.