Pre-Approvals and Other Scams

Let's be direct. Unsolicited, "Pre-Qualified credit line" mass mailings are unethical at best.  You know the pitch: "Because of your excellent Dun & Bradstreet rating your company has been selected to receive a $75,000 leasing line of credit!  Just call your customer Service Rep to activate your line".

When you call you are congratulated and then faxed a "membership confirmation form."  You are told to start selecting equipment from vendors of your choice, arrange for delivery and let the vendor know that you are pre-approved by the leasing company.

What are the problems here?  In no certain order, the problems are:

• Your company is NOT pre-approved.  The "membership confirmation" is nothing but a credit application.
• The rate or payment per month can (and often does) change because of something on your credit report even though you were pre-qualified. (Duh!) 
• There is now an extortive effect: the equipment is about to be delivered, and you must go along with the high price (or other unpleasant terms), or have to admit to the vendor that your being "pre-approved" was not accurate -- there's a question about your credit.
• There are many scams and unfair practices that are all too common in the finance industry (See "What to Watch For," below.).  The mailing list "Pre-Approver" has given you a signal that he is prone to dishonesty.  Be Aware.
  

We recently received a call from an entrepeneur who has been trying to clean up his credit report.  This fellow has paid off all but $20,000 of a quarter million in delinquencies, charge-offs, and judgements, in spite of his attorney's telling him to just go bankrupt.  I like this guy.  He chose to do the right thing.  But he is not ready to be approved at anything like a reasonable rate.  What's the damage?  Not only did the "Pre-approver" unrealistically raise his hopes and then humiliate him to the three vendors from whom he wanted to acquire equipment, they also "shot-gunned" his application to other leasing companies (apparently trying to broker the deal).  This actually created unnecessary "inquiries" on his credit report, making it worse than it would have been.  

What to Watch For? What can be misrepresented?  The list is long, but here is the simple key to most problems: Verbal assurances are meaningless if they are not written into your lease.  Or, as one industry wit says, "If it's not in the contract, it's not in the deal."

EXAMPLES:

•  "blah, blah, blah...and then you own the equipment."  Yeah, sure!  If you do not have a documented one-dollar purchase option - either in the lease or as a separate document, you can look forward to paying anywhere from ten to fifty percent of the original cost of the equipment to purchase it at the end.  What's that? You want to fight it? Monthly rental payments will continue while you are fighting that losing battle.  You MUST make sure BEFORE you sign a lease that the purchase option you negotiated is in binding written form.  By the way, be certain that there are no unreasonable purchase option terms, such as "...you must notify us 90 days before the end of the lease or your lease renews and you must make payments for an additional one year period.
• "...and the interest rate is only _____." (Fill in the blank).  A leasing company rep can be held to monthly payment, number of months, purchase option, documentation fee, total dollar amount of finance cost, and number of advance payments.  He cannot be held to the interest rate because it does not appear in the contract.  At Keystone Equipment Leasing, Inc., we encourage comparison shopping.  But compare the things that are in the contract. It is the only way to do an apples-to-apples analysis.  Interest rate formulas are complex things (even Albert Einstein is reputed to have been fascinated) and few people can work it backwards.  At least if you work out several lease quotes yourself, you'll be using the same formula for each to see who has the best deal.  Note:  For the past two decadess we have been offering lunch at the best restaurant in the customer's town if we could not prove that the "interest-rate" quote for any leasing company was inaccurate.  Still no winners.  If you have a few quotes with payment amount and terms, you will be doing the best you can -- and we at Keystone will win your business almost every time.
• Advance Rentals vs. Security Deposits:  Advance rentals are usually applied to the first monthly payment and the last one or two payments. Security deposit application is dependent on the ethics of the leasing company.  Is it refundable? Can it be used for the last couple of payments? Is it in addition to a first month's rental. (That would make a two advance payment deal into a three advance payment deal.)
• "Is there an early buy-out or pre-payment penalty? Absolutely not!" says the glib lease salesman.  I am reminded of the software engineers' advice: "When all else fails, RTFM (read the manual)."  These contracts are non-cancelable.  A decent leasing company will allow you to discount the accelerated payments at a reasonable rate.  A bad one will allow you to write a check for all of the remaining payments on your lease without adding a penalty payment, and that IS a penalty. You are paying early, without any rebate of the finance charges.

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KEYSTONE EQUIPMENT LEASING, INC.
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SINCE 1983

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