Leasing a laser: what determines your monthly payment?

In the previous article in this series, we looked at different ways to purchase or finance a laser or another energy-based device. We used a €100,000 device as an example.

All amounts, interest rates and calculations in this article are fictional examples intended solely to explain how financing works. They are not price indications or offers from Medi-Invest or any finance provider.

Suppose you want to lease that laser. One proposal is €1,900 per month; another comes to €1,650. Is the second one cheaper?

Not necessarily.

The monthly payment depends on how much you finance, the term, the interest rate and choices such as a balloon payment or indexation. And the monthly figure tells you nothing about what happens if you want to move to newer technology after three or four years.

That last point matters: the term of your financing and the economic life of the device do not have to be the same.

So in this article we explain what goes into a lease payment — and why it makes sense to think about the next step when arranging the financing.

An example: three ways to finance €100,000

Suppose we finance the same fictional €100,000 laser in three different ways. In each case we use, purely for illustration, a 6% interest rate and a 60-month term.

The figures are rounded and entirely fictional. They illustrate the calculation only and are not price indications. Actual proposals, interest rates and terms may differ substantially.

Which option is cheapest?

You cannot tell from the monthly payment alone. In B, you contribute €20,000 from your own funds. In C, you keep that cash available, but €20,000 remains outstanding after five years. And in all three cases, the laser is likely still to have some market value after five years.

To compare the proposals properly, we first need to understand what makes up the monthly payment.

The four main building blocks of your monthly payment

1. The amount financed

The more you finance, the higher the monthly payment.

For a €100,000 device, you could finance the full amount or, for example, contribute €20,000 yourself and finance €80,000.

A deposit reduces the monthly payment and usually the total interest cost, but it immediately uses your own cash. That money is then no longer available for staff, marketing or other investments.

When comparing proposals, also check exactly what is being financed. Accessories, installation, training or other components may sometimes be included in the financed amount.

2. The term

A longer term spreads repayment over more months, so it usually reduces the monthly payment.

The trade-off is that you use the finance provider's capital for longer and will generally pay more interest.

A longer term is not inherently better or worse. The real questions are what monthly commitment fits your cash flow and how much flexibility you want during the agreement.

3. The interest rate

Interest is the price you pay for having capital made available to you.

The rate offered by a finance provider depends on factors including market rates, the amount financed and the term, but also on the financial position of your business. A lender may look at how long the business has been operating, turnover and profitability, available cash flow, existing commitments and the value of the device.

As a result, two clinics can receive different financing terms for exactly the same device.

4. Balloon payment and indexation

Besides the amount, term and interest rate, the way payments are distributed over time can also vary.

A financing agreement may, for example, include a balloon payment or indexation during the term. Both affect the monthly amount, but in different ways.

What does a balloon payment do?

A balloon payment is an amount that you do not repay during the term, but pay at the end.

The laser has not suddenly become €20,000 cheaper. You are simply paying part of the amount later. You will also generally pay interest on the balloon amount during the term because that capital remains outstanding.

Even so, a balloon payment can make sense.

A €100,000 laser is unlikely to be worthless after five years. If the device still has substantial market value at that point, the financing does not necessarily have to amortise fully to zero over the same period.

This creates a link between the balloon payment and the expected residual value. A balloon can help align the financing more closely with how the device is expected to retain value over time.

And how does indexation work?

A lease payment does not have to remain unchanged for the entire term. An agreement can, for example, provide for annual indexation.

Nominal payments then become higher later in the term.

That does not necessarily make indexed financing less attractive. Over five years, treatment prices, revenue, salaries and other costs may also change. An indexed payment may simply move more in line with the income the device generates.

What matters is knowing whether indexation applies, when it takes place and what it is based on.

Timing matters too. Paying €20,000 today is economically different from paying €20,000 five years from now, because in the second case you keep that money available for longer. So do not compare proposals only on the monthly payment or the nominal total of all payments; also consider when those payments fall due.

What will your laser be worth in a few years?

The value of a used device depends on factors including brand and model, age, technical and cosmetic condition, service history, availability of parts, technological developments and demand in the second-hand market.

That residual value matters regardless of how you financed the device.

A fully paid-off laser with a market value of €30,000 is not 'free'. There is still €30,000 of value tied up in the device. You can continue using that value in your clinic, or potentially sell or trade in the device and invest the proceeds in newer technology.

This brings us to an important distinction between the financing term and the useful life of the device.

Financing for five years does not mean using the same laser for five years

When clinics invest in equipment, we regularly hear: “After five years the laser is paid off, and then we really start making money from it.”

But a device should be generating revenue from the start through the treatments you perform with it. At the same time, it gets older, its market value changes and new technology becomes available.

So the end of the financing term is not necessarily the best time to replace a device.

Suppose you want to move to a new generation after three years. Your existing device still has a market value at that point, while some financing may also remain outstanding.

If, for example, the device is worth €50,000 and €40,000 of financing remains, the €10,000 difference represents value that may be available towards the next investment.

That is why it makes sense to think about a future trade-in or upgrade when you first buy the device.

A market-based buyback valuation from Medi-Invest

As part of a deal, Medi-Invest can help you plan for that future switch.

For example, we can agree to make a market-based buyback valuation after a number of years. At that point we look at factors such as the model, age, condition, service history and the current second-hand market.

Based on that assessment, Medi-Invest can make an offer to buy back the device. After any remaining financing has been repaid, the value left over can be used towards a new device.

A market-based buyback valuation is explicitly not a guaranteed residual value agreed in advance. We simply cannot know today exactly what a device will be worth in three, four or five years.

The main advantage is that a 60-month financing term does not automatically tie you to the same technology for 60 months. Financing can form part of a longer investment and upgrade cycle.

Check the other terms as well

Additional conditions may apply alongside the financing itself. A finance provider may require adequate insurance for the device. There may also be requirements around maintenance and service, or one-off administration or arrangement fees.

So when reviewing a proposal, look beyond the monthly payment and check:

• how much you contribute and how much is financed
• the term and interest rate
• any balloon payment
• any indexation
• exactly what is included in the monthly payment
• insurance, maintenance and service requirements
• options for early repayment
• trade-in or upgrade options
• what happens at the end of the term