Key highlights
- Total cost is principal plus all interest and fees
- A longer term lowers repayments but raises total cost
- A balloon reduces repayments but adds a final lump sum
- Compare the total payable, not the headline rate
The total cost of equipment finance is everything you pay over the life of the deal: the amount financed, all the interest, and every fee, considered together rather than as a headline rate. Two deals with the same rate can cost very differently once term length, fees and any balloon are counted. That total, not the percentage, is what you should compare. Overdrive compares 80+ banks and non-bank lenders on one application and presents each option on a total-cost basis, so you can see which is genuinely cheaper.
What goes into total cost
Total cost is simpler than it sounds: it is the sum of everything you hand over across the term. That means the amount you finance, all the interest charged on it, and every fee, from the establishment fee to any ongoing account fees. If the deal has a balloon or residual, that final lump sum is part of the picture too. Comparing on total cost, rather than the advertised rate, is the only way to know which deal is truly cheaper, because a low rate can be paired with high fees or a long term that quietly pushes the real cost up.
How the term changes the cost
The loan term has a big effect. A longer term spreads repayments out, so each one is smaller and easier on cash flow, but you pay interest for longer, which raises the total cost. A shorter term does the opposite: higher repayments, less total interest. Terms typically run from one to seven years. There is no single right answer; it depends on whether you value lower monthly outgoings or a lower overall cost. The point is to see both effects clearly, so you choose the term deliberately rather than defaulting to the longest one because the repayment looks comfortable.
The effect of a balloon or residual
A balloon or residual is a lump sum left owing at the end of the term. Setting one reduces your regular repayments, which helps cash flow, but the amount does not disappear: you pay it, refinance it, or settle it when the term ends, and you have paid interest on the full balance along the way. Used well, a balloon can match repayments to how the asset earns. Used carelessly, it can make a deal look cheaper month to month while the total cost is higher. Always factor the balloon into the total when comparing, not just the monthly figure.
Rate, fees and the real comparison
The rate matters, but it is only one input. Strong, asset-backed deals may start from around 6.55% p.a., while older assets, lower-doc files or weaker credit are priced higher, all indicative and subject to lender assessment. Fees vary between lenders and can swing the total meaningfully. This is why two offers with identical rates can differ in real cost. The fair comparison is the total amount payable over the full term, interest and fees included. Ask every lender for that figure, and compare like for like rather than being drawn in by the lowest advertised percentage.
Working out your total cost
To estimate total cost, add up all repayments over the term, include any balloon and every fee, and compare that against the price of the asset. The gap is essentially your cost of finance. A broker can produce this for several lenders at once so you compare cleanly. On tax, interest and fees may be deductible for business use, but treatment varies, so check with your accountant. Overdrive can lay out the total cost across 80+ lenders on one application, so the comparison is done for you rather than left to guesswork. Same-day pre-approval and 24-48 hour settlement may be possible for eligible applicants, subject to lender assessment.
The headline rate is a starting point, not the answer. The number that tells you which deal is genuinely cheaper is the total cost over the full term, fees and balloon included. That is the figure worth chasing. Overdrive's dedicated broker, Simon Kendrick, compares 80+ banks and non-bank lenders on one application and presents each on a total-cost basis. Request a free quote and compare deals on what they really cost, not just how they advertise.
Frequently Asked Questions
Does a lower rate always mean a lower total cost?
No. A low rate can be paired with high fees, a long term or a large balloon that push the real cost up. Two deals with the same rate can differ significantly once everything is counted. The reliable comparison is the total amount payable over the full term, fees included.
How does a balloon affect total cost?
A balloon lowers your regular repayments by leaving a lump sum owing at the end, but you still pay that amount and have paid interest on the full balance along the way. It can help cash flow, yet it often raises total cost, so always include it when comparing deals.
Should I choose a shorter or longer term?
A shorter term means higher repayments but less total interest; a longer term eases cash flow but costs more overall. Terms typically run one to seven years. The right choice depends on whether you prioritise lower monthly outgoings or a lower total cost, so weigh both deliberately rather than defaulting to the longest.
How do I calculate the total cost myself?
Add every repayment across the term, include any balloon and all fees, then compare that figure against the asset price. The difference is roughly your cost of finance. A broker can produce this across several lenders at once, letting you compare on a genuine like-for-like total-cost basis.
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