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PostPosted: Wed Aug 10, 2016 10:02 pm 

Joined: Wed Aug 10, 2016 4:58 pm
Posts: 6
One of the biggest mistakes we made in our printing business was to get new equipment by rolling over our leases. Here's what those clever little sales reps did.

Us: We can't afford new equipment.
Rep: We can set up a new lease for you; where you pay less than you do every month. You just have to extend the total period of the lease.
Us: We pay less each month? That sounds great. Let's do that!

We thought that we'd have less stress in meeting the monthly payments by doing this. What a clever way to do things! So we did this each time we swapped our aging equipment for newer models.

Those of you in the know would be shaking their heads, thinking how stupid we were being. And you would be right. I wish you were there to tell us so.

For those of you who don't see the folly of this, let me explain (and hope you don't fall into the same trap). It all has to do with compound interest. Compound interest is great when it's working for you, but destructive when working against you. What we failed to see was that each time we rolled our leases over to incorporate the new amount, we were compounding the interest on previous lease amount on top of the new lease amounts. And we did this a few times. And lease interest rates are hefty. And the lease periods were stretching out.

The upshot of this, is that high interest rates that are compounded and applied over extended periods of time, lead to big debts.

Lesson learnt: consult your accountant before making decisions that involve major changes to leases or loans. Even if they seem like a good deal to you.

Mario Llige
UltraPRINT (Aust)
We’ll get you in front of more potential customers

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