In·fla·tion: noun
ECONOMICS a general increase in prices and fall in the purchasing value of money: policies aimed at controlling inflation | [as adj.] high inflation rates.
The Benefit of Leasing your equipment in an Inflationary Environment:
by Andrew Nere, CEO
I think we can all remember a parent or grandparent (maybe even ourselves) remarking about the "good ol' days" when a burger was 10¢ or gas was under $1 per gallon. While there are a lot of market forces that move prices over relatively short time periods, there is also an ever-present force called inflation that seeks to erode the value of your dollar every day.
The definition of Inflation, on a very basic level, is "too many dollars chasing too few goods". So following this definition, if you have 10 times more money chasing the same amount of goods then the price of those goods will rise. |
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Why? Well think of it as an auction where all of the bidders now have more money to spend. Because more money is available, it requires more dollars to acquire the same goods. As a result, the value of those dollars becomes reduced.
Now this does not mean too much money is necessarily a bad thing, just that it tends to erode the individual value, over time. Remember that 10¢ burger back in 1950? Burgers are still about the same real value today; it is the dollar value that has less purchasing power.
So, if we now accept that inflation erodes the value of your dollars over time, then logically your dollar today is more valuable then your dollar next year. OK, lets put this into action and discuss the benefits of leasing your Equipment.
When you lease your equipment you commit to a fixed monthly payment over a period of time. Basically you lock your payment for the term of the agreement. Now as you pay back the lease, in fixed payments, the value of those payments is less (due to inflation). To illustrate, lets do some math:
$50,000 Equipment Cost
Inflation Rate at 3.5%
$1,000 Monthly Payment for 60 months
Year 1: Payback $12,000. Value Payback Dollars: $11,775 Inflationary Savings: $225
Year 2: Payback $12,000. Value Payback Dollars: $11,369 Inflationary Savings: $631
Year 3: Payback $12,000. Value Payback Dollars: $10,977 Inflationary Savings: $1,022
Year 4: Payback $12,000. Value Payback Dollars: $10,599 Inflationary Savings: $1,400
Year 5: Payback $12,000. Value Payback Dollars: $10,235 Inflationary Savings: $1,765
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So, while you pay back a total of $60,000 over those 5 years, the real value of those dollars is diminished over time. If you pay cash today, you pay the value of $50,000 in 2008 money (and 2008 money is worth far more than money in the future).
If you pay over the term you pay only $54,956 (inflation adjusted 2008 dollars). This money is paid out over 5 years so this equates to a simple rate of less than 2%. This is on top of the other benefits of leasing.
So the conclusion of this article is that inflation is a real erosive force on the value of goods over time. By leasing your next equipment purchase you harness the power of this force and pay for your equipment (in less valuable dollars) over the lease term.
Start taking advantage of the current inflationary environment and
Apply Now for your Equipment Leasing Line of Credit. |
