Credit Card Machine Leases: Why You Should Avoid Them and How to Escape

In many cases, leasing a product is a great option for consumers. Whether you’re leasing a car, a workspace, or a computer, the option to pay in monthly increments is often what makes necessary products affordable.

There’s an important exception, though: payments hardware.

Small business owners should avoid leasing their payment processing equipment as much as possible. Not only may traditional payment hardware be unnecessary for your company, but you’ll end up paying a much larger amount if you lease the hardware versus paying for it out of pocket. Not to mention, once merchants take out a lease on hardware, it’s virtually impossible to break free from it.

Whether you’re considering taking out a lease on hardware or if you’re wanting to get out of one, there are a few things to consider before taking the next step:

What payments hardware do I need?

The payments industry is leaps and bounds ahead of where it was even ten years ago. Nowadays, merchants have a wide variety of choices, from barebones $50 readers to elaborate $10,000 behemoths. You’ll have to take a lot into consideration when choosing your payments hardware, most of which requires you to know your company well. Before you lease or purchase payments hardware, be sure to consider the following, as well as any other factors that might be important to you:

• Businesses that complete orders online or by phone: If your business doesn’t have a brick and mortar location, a virtual terminal might your best—and cheapest—option rather than a manual credit card terminal.
• Single location vs. multi-location: Obviously it would be a mistake to purchase multiple pieces of equipment when only one is necessary, but it would also be a mistake to purchase hardware with multi-location functionality if it’s not necessary for your business. No need to pay for features that offer no benefit to you.
• Business culture and feel: This might not be important to some merchants, but to many, a payments system should reflect the feel of your business. No high-fashion boutique is going to feel comfortable using a clunky old card reader, while a hardware store might not need a sleek, beautiful setup. Keep your target market in mind as well. As an example, if you play to a younger demographic, you might want to make mobile payment capabilities a priority.

Why shouldn’t I lease my credit card machine?

As we mentioned before, when merchants lease hardware, they’re almost guaranteed to lose money. Why is that?

While purchasing hardware out of pocket may seem like a big expense, especially for new businesses, advancements in hardware are making it much more affordable. Companies like PayPal, who have made it much easier for regular people to accept payments wherever they are, have forced traditional processors to develop more accessible hardware, driving down the cost of card terminals. Take the VeriFone VX520, for example. This terminal has every basic function you might need and costs as low as $120.

If you haven’t done research on payments hardware, you might not know how inexpensive some terminals can be. Salespeople rely on that lack of research, often offering lease agreements with no upfront costs and low monthly payments. To budget-conscious business owners, that small monthly amount looks like an attractive option.

The problem? Most salesmen will sign merchants up for a long lease term—usually four years. Say the monthly payment is $10 for the VeriFone VX520 (which certainly seems reasonable), but the lease runs for four years. That means by the end of the lease, a merchant will have paid nearly $500 for a piece of equipment worth $120. That means it cost the merchant four times as much to lease the hardware as it would have if they just purchased it up front. All that extra money goes straight into the salesman’s pocket.

How do I get out of a payment terminal lease?

Unfortunately, if you already have a leasing contract and you’re looking to get out of it, almost all agreements are completely non-cancelable (salespeople are smart like that). Often, the only time a merchant can get out of a lease is if the leasing company did something illegal in the process.

While there’s no guarantee, if you’re stuck in a lease there are a few steps you can take to attempt to break it:

1. Consult a lawyer who can help find loopholes in the contract.
2. Review state laws that regulate leases.
3. Document all the reasons you want to break the lease and issues you’ve encountered with the equipment. Were promises not met? Was there blatant misrepresentation? If so, you might have some legal recourse to cancel the contract.
4. Try and pass your lease to someone else. Most leases are transferable between merchants, so this is a potential option if you’re looking to escape from your lease contract right away.

If none of this works, you may be able to negotiate an early end your lease but you’ll likely be responsible for paying the remaining balance. Still, this can be a good option if you can afford it. Taking that hit and purchasing new equipment can save you from being stuck with another lease contract in the future.

The best line of defense however, is to read the agreement beforehand. Make sure that you can transfer the lease if necessary. Do your research on the hardware your processor offers and try to negotiate lower payments or a shorter lease period to minimize their margin on the lease. Consult with an accountant, lawyer, or other business owners to see if leasing really is your only option.

Leasing is supposed to be an affordable option for merchants to get the equipment they need. Unfortunately, when it comes to payments hardware, it’s become an easy way to make a profit. The best practice is to avoid leasing payment hardware at all costs. Take your time and find what type of hardware and software will work best for your company before rushing into a leasing contract. While it might seem like you’re saving money upfront, leasing will cost you and your business much more in the long run.