Two Types of Used Equipment Financing
Equipment financing refers to a loan that is used to purchase business equipment. The kinds of products which lenders offer as used equipment loans are akin to the ones which they offer to businesses to facilitate new equipment purchases. Used equipment financing can be classified into two forms on the basis of rates of interest charged by lenders.
Fixed Rate Loan
Throughout the duration of the used equipment loan, the rate of interest remains the same. With this kind of loan, both the principal amount and the interest paid changes from one month to the next, but the overall amount of payment does not change.
Variable Rate Loan
This is the kind of product where the rate of interest varies as the equipment loan progresses. At the start, the rate of interest would be set by the lender to a value which is lower than another comparable loan, where the rate remains fixed throughout the duration. The lender would set a time limit in which the rate would remain the same, and after that specific time, it would increase at an agreed-on rate. At the latter phases of the loan, it will be higher than that of the comparable fixed rate loan.