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Comparing “Rent to Buy” to “Chattel Mortgage” Cost of Ownership

Although Rent to Buy has a higher 1st year repayment the overall cost of ownership over a 5 year period is approximately 11% more than Chattel Mortgage (Chattel Mortgage is the most common form of finance agreement used for business equipment and the like).

The challenge for any business owner is accepting the large variance in the first year. If your business cannot afford the “Rent to Buy” option, you need to really consider is this equipment really right for you.

The example is for $40,000 cost price. An indicative interest rate of 8% is used for the Chattel Mortgage examples. 100% business use of goods is assumed.

Rent to Buy Chattel Mortgage
Purchase Price $40,000.00 $40,000.00
1st 12 months Payments $2,039.00 per month $828.00 per month
Balance Owing at 12 months $26,536.00 $33,908.00
Payment Months 13 to 60 $648.00 per month $828.00 per month
Payments Made for Ownership $55,572.00 $49,680.00

Comparing “Rent to Buy” to a “Bad Credit Loan” Cost of Ownership

Many applicants with bad credit may have the option of a “Bad Credit Loan” These loans have higher interest rates many in excess of 20%. You will need to pay this for the whole term of the loan.
When you enter into a “Rent to Buy” agreement, your good payment history over 12 months and the low payout balance on the agreement could get you back into the main stream for finance after just 12 months.

Presuming that you can, the cost of ownership can be a lot less. You probably still won’t get a bank loan, but you may have available finance at the second tier.

The example is for $40,000 cost price. An indicative rate of 11.50% has been used for “Rent to Buy” refinance. 19.95% has been used for the “Bad Credit Loan”

Rent to Buy Bad Credit Loan
Purchase Price $40,000.00 $40,000.00
1st 12 months Payments $2,039.00 per month $1060.00 per month
Balance Owing at 12 months $26,536.00 $34,826.00
Payment Months 13 to 60 $692.00 per month $1060.00 per month
Payments Made for Ownership $55,572.00 $63,600.00

Harley Finance is the Trading Name of Wynevili Holdings Pty Ltd and the Gruppelaar Family Trust.
ABN No 92 116 085 938. Australian Credit Licence No. 442259. External Disputes Resolution. FOS Member No. 33053

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