Understanding Equipment Financing Rates & Fees

When financing equipment for your business—whether it’s a truck, CNC machine, commercial freezer, or medical device—the monthly payment is only part of the story.

The real cost of financing lies in the interest rate, the loan structure, and the fees attached.

If you're not careful, a seemingly affordable deal can end up costing far more over time. In this guide, we break down:

• How interest rates are calculated
• What APR really means
• Typical cost ranges for equipment financing
• Common fees to watch out for
• How to compare offers with confidence

Whether you’re financing through Mehmi or another lender, these insights will help you make smarter decisions—and avoid unpleasant surprises.

What Is the Interest Rate on Equipment Financing?

Your interest rate is the cost of borrowing money. It’s usually expressed as a percentage of the principal amount per year.

For example:

• You borrow $100,000 at 10% interest
• Over a year, that’s $10,000 in interest (simple example)

But financing is rarely that straightforward. That’s why we also look at APR.

APR vs Interest Rate: What’s the Difference?

APR (Annual Percentage Rate) includes both the interest rate and any additional lender fees. It gives you a clearer picture of your true yearly borrowing cost.

Always ask your credit analyst for both the interest rate and the APR when reviewing offers.

What’s a “Good” Interest Rate for Equipment Loans in 2025?

Rates can vary based on several factors, including your credit profile, business history, the asset, and lender type.

As of 2025, typical interest rate ranges are:

• Strong Credit (680+): 8%–11%
• Mid-Range Credit (620–679): 11%–16%
• Lower Credit or Newer Business: 16%–24%
• Alternative/last resort lenders: 25%+

These are general estimates. Your actual rate may vary based on lender, industry, loan structure, or whether the equipment is new or used.

What Affects Your Equipment Loan Interest Rate?

1. Credit Score (Personal and/or Business)

Higher scores = lower risk = better rates
Many lenders require a 650+ credit score, but some offer flexible programs.

2. Equipment Type & Condition

New, popular, and resellable equipment (like trucks or CNCs) usually gets better terms than highly specialized or outdated gear.

3. Loan Term

Shorter terms (e.g. 24–36 months) often come with lower rates but higher monthly payments.

4. Business Financials

Lenders may look at monthly revenue, time in business, and your bank statements.

5. Down Payment

Putting 10–20% down can reduce your interest rate or increase your approval chances.

Common Fees in Equipment Financing

It’s not just the rate that affects your bottom line. Here are some typical fees to ask about before signing:

Origination Fee

A one-time fee charged for setting up the loan (often 1%–3% of the total). This may be baked into the loan or charged upfront.

Administration or Setup Fee

Covers paperwork, title transfer, or registry. Common on lease or private-sale transactions.

Early Payout / Buyout Fee

Some lenders charge a fee if you pay off the loan early or buy out a lease. Ask if a “discounted payout” is available.

Late Payment Fee

If a payment is missed, late fees can range from $50–$150 or a percentage of the missed amount.

PPSA Filing Fee (for Canadian provinces)

Covers the registration of lender security interest in the equipment. Usually $25–$100 depending on province.

How to Compare Two Equipment Financing Offers

Let’s say two lenders offer to finance a $75,000 truck over 48 months.

Which one is better?
Lender A looks more expensive up front—but it’s more transparent and has lower total cost when you factor in fees.

What Questions Should You Ask Before Signing?

What is the interest rate AND APR?
Are there any origination or admin fees?
Is there a buyout or early payout fee?
Are payments fixed or variable?
Can I skip a payment or structure seasonally?
Can I bundle install, accessories, or freight into the deal?

These are the exact questions a Mehmi credit analyst can walk you through during your application process.

Real Case Study: Transparency Saves Thousands

Business: Alberta-based plumbing contractor
Need: Finance a new $38,000 service van
Bank Offer: 8.9% interest, $600 admin, 1.5% early payout penalty
Alternative Lender Offer: 10.4% interest, no admin fees, no payout penalty

Decision: Took the slightly higher interest deal for full flexibility.

Outcome: Paid off the van in 30 months (18 months early), saving over $1,900 in early payment penalties vs the bank option.

Final Tips to Keep Your Equipment Financing Affordable

1. Shop around – Don’t settle for the first offer unless it’s transparent and competitive
2. Understand your real costs – Ask for APR, not just the payment
3. Avoid hidden fees – Especially admin, buyout, or balloon charges
4. Work with transparent lenders – Prefer firms that walk you through terms in plain English
5. Don’t stretch the term too long – Lower payments are nice, but long terms cost more in interest

FAQs: Interest and Fees in Equipment Loans

Is interest fixed or variable on most equipment loans?
Most commercial equipment loans and leases in Canada have fixed interest, so your payment stays the same each month.

Can I avoid paying interest entirely?
Only if you pay cash. But financing allows you to preserve working capital and still grow—see Cash vs Financing Equipment.

What’s a good interest rate for my business?
If your credit is 650+ and you’ve been operating over 2 years, a good rate in 2025 is likely between 9%–13% depending on the asset.

Do all lenders charge the same fees?
No. Some charge no origination fees, others include them in the APR. Always ask for a fee breakdown in writing.

Need help reviewing a financing offer—or building one that fits your cash flow?
Speak to a credit analyst or use our calculator to compare different loan and lease scenarios.

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