GPS Fleet Tracking System Buyer’s Guide – Equipment Leasing “Tricks” to Avoid
Leasing has always been used as a viable option to assist companies in purchasing a GPS fleet tracking system with a nominal upfront investment. The upside to the customer is that it reduces your out of pocket expense. The upside to the provider is that it reduces a big obstacle to the sale. However, many providers are now using “creative” finance programs that benefit them, but have the potential to harm the customer.
Here are two finance options that you should be weary of:
1. The “bundled” option:
Some GPS fleet management providers are now bundling GPS fleet tracking hardware and airtime into one lease. In this case, the provider is selling your lease to a 3rd party and is receiving an up-front cash payment for the equipment as well as 3 years worth of the services.
They pitch this to you as a simple “one-rate” or “bundled” lease, but this is problematic for several reasons:
a. Since they are essentially “selling” 3 years worth of unprovided services, their incentive to provide good customer service is diminished. They already have the cash, so if you are unhappy, they aren’t as motivated to keep you as a paying customer
b. If you decide to quit the service mid-term due to product issues, you have no way out. The lease is handled by a large 3rd party financing company with an aggressive legal team. They will not let you off of the hook for the remaining payments without a difficult and costly fight.
c. If they go out of business, you still have to pay the finance company for the remaining months of the services, even if they are no longer being provided.
2. The never-ending lease:
Some providers pitch a “free” equipment option, which is really a never-ending lease in disguise. What they try to do is get you on the hook for $45 per month per vehicle as long as you have the service. Therefore, if you have the service for 7 years, you are paying them a premium of nearly $1,300 per vehicle compared to a traditional lease!
The industry standard is a 3 year lease with a $1 buyout. I would personally go this route, because after the 36 month term, I would pay $1 per device and I would own it free and clear. Other options include fair market value (FMV) and 10% buyout options. Fair Market Value is not very popular because it is difficult to place a market value on this equipment after 3 years. The 10% buyout option has similar challenges.
If you have the cash, it is best to just purchase the equipment outright. You will avoid 25% to 30% in built in financing charges and can more easily get out of paying service fees for a product that isn’t meeting your needs or if the provider ceases to exist. If you have to lease, shop around for the best rate and avoid the “bundled” and never ending lease programs. Be sure to ask your provider detailed questions about how their leasing program works.