The Hidden Traps Behind "Too Good to Be True" Finance Offers
- Phil Horton
- Apr 27
- 2 min read
Headline interest rates are often used as eye-catching marketing tools, but they don’t always tell the full story. Understanding how these rates work can help you secure the best financing for your business while avoiding costly surprises. Here’s what you need to know.
Headline Interest Rates Often Exclude Fees
Dealers and equipment suppliers may often advertise low headline interest rates to attract customers, but these rates often exclude additional fees such as establishment fees, monthly service fees, and early repayment penalties. Always request a full breakdown of costs in writing and consider the true cost of the loan, including fees and charges.
Subvention – Higher Equipment or Vehicle Costs May Apply
This is one of my biggest bug-bears in the equipment financing arena. (2nd is undisclosed fees per above). Subvented finance deals, sometimes seen in vehicle or equipment finance, offer ultra-low interest rates that seem too good to be true (often below the cost of funds). These offers are often subsidized by inflating (or refusing to discount) the equipment or vehicle’s purchase price, meaning you might be paying more upfront for the asset itself. Funding a less amount at the rate of the day over the loan period will ensure you pay LESS whole of life. It’s the amount you borrow that increases the amount of interest you pay. Always compare the total cost of the deal—including the loan amount, repayments, and asset price—to ensure it truly offers the best value.
Always Compare Repayments – Not Just Interest Rates
A lower interest rate doesn’t always mean a cheaper loan. Seems crazy right? Different lenders have different fee structures and loan terms, so it’s crucial to compare total repayments over the loan term rather than just focusing on the interest rate. Two loans with the same rate can have vastly different repayment obligations depending on fees and structuring.
Understanding Loan Terms & Conditions
Beyond the interest rate, loan terms such as repayment schedules, balloon payments, and flexibility in early repayments can impact the overall cost of your loan. Ensure you read the fine print and work with a finance expert to understand how each term affects your business’s cash flow.
Get Expert Guidance to Secure the Best Finance Deal
When it comes to business finance, knowledge is power. Instead of getting caught up in flashy interest rates, focus on the total cost of borrowing and how the loan aligns with your business goals.
Want expert advice on securing the right finance solution? Get in touch today, and we’ll help you find a funding option that truly benefits your business.
Written by Phil Horton
Senior Finance Broker
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