Credit Card Terminal Leases: The Real Cost

How terminal leases work

A salesperson signs you up for processing and offers a terminal for a monthly payment instead of an upfront price. The paperwork for the terminal is a separate agreement, often with a separate leasing company. That company pays the processor or the sales agent for the equipment, and you repay the leasing company over the term.

Three features show up in most of these agreements:

• A long term. Thirty-six and forty-eight months are common.
• No cancellation. The agreement states it cannot be cancelled. Payments are due for the full term whether or not you use the terminal.
• A personal guarantee. Small business owners are often asked to guarantee the payments personally, which puts your own credit at stake.

Many leases also include language that makes the payments due even if the equipment breaks or the processor that supplied it goes out of business. People in the industry sometimes call this a "hell or high water" clause.

The math

Take a countertop terminal that would cost about $399 to buy outright.

At $69 a month, the lease costs more than eight times the purchase price. Many leases add more on top: a monthly loss or damage waiver, sales tax on each payment, and a charge at the end of the term. Some end-of-lease terms let you buy the terminal at its fair market value, and others continue billing month to month until you send written notice.

The terminal itself also ages. A device bought on a four-year lease may stop receiving security updates, or stop meeting card network requirements, before the last payment is made.

Red flags in a lease agreement

Before signing anything, look for these:

• The words non-cancellable or cannot be terminated.
• A term longer than 24 months for a single terminal.
• A company name on the lease that differs from your processor's name.
• A personal guarantee clause.
• Automatic renewal or month-to-month billing after the term ends.
• A fair market value buyout instead of a fixed $1 or $0 buyout.
• Fees for insurance, damage waivers, or late payments that are not on the processing agreement.

If the salesperson says the terminal is "free" or "included," ask for the equipment terms in writing. A terminal that comes with the account at no cost will not need a separate financing agreement.

If you are already in a lease

1. Find the lease agreement. Identify the leasing company, the start date, the monthly payment, and the term. If you cannot find it, the leasing company's name usually appears on your bank statement next to the monthly debit.
2. Calculate what remains. Multiply the monthly payment by the months left.
3. Ask the leasing company for a buyout quote. Some will accept less than the full remaining balance to close the account, especially when many payments remain.
4. Check whether the terminal works with another processor. Many terminals are programmed for one processor, and moving them takes reprogramming. Some cannot be moved at all.
5. Do not simply stop paying. A non-cancellable lease with a personal guarantee can go to collections and affect your credit. Negotiate first.
6. Document misrepresentation. If you were told the lease could be cancelled or the terminal was free, write down what was said, when, and by whom. Complaints can be filed with your state attorney general and the Federal Trade Commission, and documented misrepresentation strengthens any negotiation.

Leaving your processor and leaving your lease are separate steps. Our guide to early termination fees in merchant contracts covers the processing side.

Better ways to get a terminal

• Buy it outright. Countertop and wireless terminals commonly sell for a few hundred dollars.
• Rent month to month. Some processors rent terminals with no long-term commitment, so you can return them and stop paying.
• Use a card reader with a phone or tablet. For low volume, a simple reader and an app can be enough.
• Confirm compatibility first. Before buying, ask your processor which models it supports, so the terminal is not tied to an account you may want to leave.

Equipment is one line among many on the true cost of taking cards. Our list of statement fees worth questioning covers the others, and our guide to your effective rate explains how to include lease payments in the total.