Really Bad deals!

 When credit is tight leasing equipment and selling of your credit card receivables becomes more popular. Some of these deals, most in fact, are a really bad idea. With effective interest rates of up to 40% plus.

Leasing equipment is a bad deal most of the time. The trick is to compare the total cost at the end of the lease against the cost of more traditional financing of the equipment. Compare the total payout over the life of the contract. Do not forget to include lease buy outs and property taxes.

Lets assume your lease is a fair market value lease. What is the fair market value at lease end? I recently had a DELL lease end. The fair market value of desk top computers is about $100. the auction sale amount is about $30 including monitors if they will take them at all. Dell wants $300.00 per computer. I can buy a new computer at retail for $450.00 To make matters worst Dell sends a letter saying the negotiated amount of the lease buyout, is non-negotiable. My solution to the Dell lease is to wait until I hear from their legal department, I need to talk to a reasonable person of authority, and that is not happening. (we no longer do any business with Dell) If you must use a lease to finance your purchase, get the $1.00 buy out type of lease, or if that is not available get the fair value in writing in advance. Vehicle leases are very problematic in this area.

Another little known lease problem is the property tax issue. Most counties tax business property. Leased property is taxed to the lessor, the lessor submits a list to the county of all leased equipment located in the taxing county, the county bills them for the taxes. The leasing company then bills you for the taxes. Using my example of Dell: Dell adds the tax to your bill each month. Thus you are losing the time value on the money, as Dell bills you in advance, in effect an interest free loan to Dell. Dell, and for that mater, all other leasing companies bill you for the same taxes on the first months lease amount, as they do on the last months lease amount. They DO NOT report the depreciated value of the leased equipment to the county as they should, and reflex the resulting savings in your bills. Why do they not take advantage of this money saving deprecation method? Because of the way they value the leases on their books, the higher the leased value of the equipment on their books, the more they can borrow at the bank. It is a house of cards, shame on the bankers and dishonest leasing companies. What I have described here is the simple version, the real rip off is actually bigger then this, but thats another story.

One lease I looked at on office modules about two years ago would have been at an effective interest rate of 38% I used a credit card check instead at 12% interest and got a 10% discount for paying cash.

I report the declining value of the furniture to the county over the same time frame as that of the office space lease and save even more on taxes. Because I purchased the equipment I got an immediate IRS tax deduction, for even more savings.

Merchant Cash advance: The latest really bad deal is

merchant cash advances.

If you take credit cards there are companies who will advance you a loan against your average credit card processing. Here is how it works. You transfer your credit card processing to them, they loan you a percentage of your monthly credit card business. They take their money back as a percentage held out of your transactions plus interest and or fees or both. The effective interest rates are above 50% see the article at Inc magazine http://www.inc.com/magazine/20080401/thanks-but-no-thanks.html

When ever you are contemplating any contractual relationship, leases, loans, etc, look at the total cost as if you where writing a check to pay in full today. Unless you do that you will get ripped off. Keep in mind you will be on the hook for the whole time value of the deal, plus taxes, interest fess, and hidden charges even when they do not disclose them, dig deep and use your calculator.