Interest rates play a crucial role in the total cost of any financing agreement—and equipment financing is no exception. Whether you're taking out a loan or entering a lease-to-own contract, understanding how interest rates are calculated and what affects them will help you make smarter, more cost-effective decisions.
What is the interest rate on equipment financing?
Equipment financing interest rates typically range from 4% to 25%, depending on credit score, loan term, lender, and business financials.
An interest rate is the percentage you pay on top of the amount borrowed for the use of funds. In equipment financing, it affects:
Monthly payments
Total loan cost
Your business’s return on investment (ROI)
Whether fixed or variable, the rate determines how affordable your financing will be over time.
| Credit Score | Average APR Range |
|---|---|
| 700+ | 4% – 10% |
| 600–699 | 8% – 18% |
| Below 600 | 15% – 25%+ |
Stronger credit = lower risk = better interest rates.
Lenders often check both business and personal credit for newer businesses.
Shorter terms usually come with lower rates but higher monthly payments. Longer terms may reduce payment amounts but increase total interest paid.
Collateralized loans (backed by equipment value) may qualify for better rates, especially if the asset holds value over time.
Putting more money down upfront may reduce the lender's risk—translating into lower interest rates.
Banks and credit unions typically offer lower rates than online lenders or alternative financing companies, but may have stricter requirements.
| Rate Type | Description | Best For |
|---|---|---|
| Fixed | Same rate for the entire loan term | Predictable budgeting |
| Variable | Changes with market conditions (e.g., prime rate) | Businesses with flexible budgets |
✅ Improve your business credit score
✅ Shop around with multiple lenders
✅ Offer collateral or down payment
✅ Choose a shorter term if affordable
✅ Maintain strong financial documentation
Related: Using Equipment Financing to Improve Your Business Credit
A low monthly payment might seem appealing—but high interest rates could mean you’re paying far more over the life of the loan. Always look at the total cost of financing, not just the upfront terms.
Before signing any equipment financing agreement, ask:
❓ What’s the interest rate and APR?
❓ Is it fixed or variable?
❓ What’s the total repayment amount?
Smart businesses don’t just finance—they finance wisely.