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Smarter Finance USA Blog

Leasing Caterpillar Equipment: Costs, Prices and Other Variables

Posted by Rob Misheloff

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We field a lot of calls from people that are looking into buying Caterpillar equipment.

Hardly anyone has the cash to buy equipment from Cat without financing it.

Cat Finance offers 4.99% and sometimes lower rates on used equipment, but they will not finance any equipment more than ten years old.

Since CAT equipment lasts forever, lots of folks we talk to are buying equipment more than ten years old.

Also, you need two (or more) years in business and really good credit to finance through CAT, so many customers will not qualify.

The problem a lot of our customers have run into is that it's almost impossible to find real information about what financing heavy equipment (including Caterpillar equipment) will actually cost on the internet.

This article will give you a better idea of what the actual costs might be relative to your business situation.

Note: You might get bored of reading. You can always scroll back up and click here to just get an honest quote to finance caterpillar equipment

What Factors go into Finance or Lease Rates for Caterpillar Machinery?

The 3 biggest factors that have an impact on your rates are:

  1. Your personal credit
  2. Your time in business
  3. Loan or lease
  4. How long you finance the equipment for

Let's talk about these...

How Does Your Credit Impact Rates when You Finance Caterpillar Equipment?

First off, if you've got good credit and the equipment is less than ten years old, call Caterpillar Financial Services.


Don't waste your time investigating options elsewhere.

If you can get approved by them, you won't get a better deal anywhere else.

If you're buying equipment more than ten years old, or your credit isn't great (675 minimum), then you'll want to talk to companies like ours.

Let's say you want to buy a 15-year old Caterpillar Soil Compactor that costs $50,000, and you were going to lease it for 4 years, having the option at the end to walk away from the equipment or keep it for $5,000. What might your monthly payments be, based on different credit profiles?

  • With good credit, 675+                                $1,325
  • With decent credit, 650-675                        $1,415
  • With fair credit, 620-650                              $1,575
  • With poor credit, 590-620                            $1,685
  • Under 620 credit score                                $2,000- $2,360

3 caveats to the pricing above:

  1. Those may not be exact prices, as lenders will look at cash flow and your time in business as well, but they are pretty good "ballpark" estimates.
  2. The prices above assume you've been in business at least two years, we'll go over options for newer businesses below.
  3. With a credit score below 590, you may need collateral depending on the situation.

Are Payments Higher to Finance Caterpillar Equipment for a New Business?

Lending to new businesses is pretty dicey, so business under 2 years old have different rules imposed upon them to finance equipment than for more established firms. It will generally be harder to qualify, and rates will be higher.

If you've got decent credit, and can make a down payment of 10% or so, rates are a little bit higher than what you'd pay as an established business, but not crazy or anything. Similarly, if you've got decent credit  and collateral, you'll pay a little bit higher, but nothing outlandish.

Good credit borrowers can typically expect payments on a 4-year term per $50k borrowed to range from $1,400 to $1,600 a month depending on the way in which financing is accomplished and an analysis of your business and personal profiles.  

If, however, you're in a startup business and you have bad credit, rates are going to be ugly. That same $50,000 over 4 years will run $1,700 to $2,300 a month.   

Caterpillar Equipment Loan vs. Lease: Which is Better?

When you do an equipment loan, you make payments over 2-5 years (or sometimes longer if the equipment is more than $100,000) and own the equipment at the end for $1. With a lease, you'll make lower payments, but at the end of the term you'll pay 10% at the end if you want to keep the equipment.

The chief difference between the two is taxes: on the loan, you may write off the first $25,000 of the purchase price in the year you buy the equipment and then depreciate the rest over time, but with a lease you write off the entire payments as an operating expense.

For this reason, especially when you are paying high finance charges, a lease is usually a better deal. In fact, often times, the tax benefits of the lease cancel out the finance charges. Here's an example:

Take our decent credit borrower with the $50,000 soil compactor. What is the total cost of financing, after tax write-offs, between a loan and a lease over 5 years, assuming a 32% tax bracket?


The borrower would save almost $8,000 over 5 years in this example with a loan versus a lease. More importantly, after factoring in the tax savings, with a lease, the financing costs are pretty reasonable.

How Long Should You Finance Your Equipment For?

You'll always save money by financing equipment for shorter periods of time, but the question is, how much will you save versus what impact higher payments will have on your cash flow.

What you'll find is, for the most qualified borrowers with lower payments, the savings aren't enormous, while for the lesser qualified borrowers with bigger payments, financing over a shorter period of time saves huge amounts of money over the term of the loan.

Let's look at our good credit borrower on a 3 year vs. a 5 year lease for $50,000 assuming a 32% tax rate: 


By increasing payments by $584 a month, the good credit borrower saves a little bit, $3,770 over the term. Now let's look at the impact for the bad credit borrower assuming a 32% tax rate:


In the case of the bad credit borrower, increasing the monthly payment by $495 saves $25,679 over the life of the lease term, which is really a lot of money.

Hopefully we've succeeded in giving you a better understanding of the costs involved for a loan or a lease on Caterpillar equipment.

For help and a personalized quote, please contact us  or give us a call at (866) 631-9996.

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Topics: equipment leasing rates, construction equipment

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