How Are Equipment Finance Rates Determined?

The base: cost of funds

Every lender has to source the money it lends to you, and that wholesale funding has a cost tied to prevailing interest rates and market conditions. This forms the floor beneath your rate. When funding costs rise across the economy, equipment finance rates tend to follow, and when they ease, pricing softens. This base component is largely outside your control, which is why rates across the whole market drift up and down together over time. What you can influence is the margin the lender adds on top of that base.

The margin: your risk profile

On top of the funding cost, the lender adds a margin reflecting how risky your deal looks. A strong, established business with clean credit buying a mainstream asset is low risk and earns a slim margin, indicatively from around 7.20% p.a. A newer ABN, an impaired credit file, a low-doc application or an unusual asset all raise the perceived risk and widen the margin. The lender is essentially pricing the probability of being repaid and, if things go wrong, how easily it could recover its money by reselling the asset.

The asset itself

The equipment being financed is central to pricing because it is the lender's security. Newer, mainstream, easily resold assets hold their value and are cheaper to finance. Older, highly specialised, or fast-depreciating gear is harder to recover value from, so it attracts a higher rate. Asset age at the end of the term also matters: a lender may cap terms or lift pricing if the machine will be near end-of-life when the loan finishes. This is why two identical businesses can get different rates simply because of the equipment they are buying.

Loan size, term and structure

Larger, well-secured loans often achieve sharper rates because the lender's fixed costs are spread over more money, while very small loans can carry proportionally higher pricing. The term length matters too, as does whether you include a balloon or residual. The finance structure, whether chattel mortgage, lease or hire purchase, and any deposit or additional security you offer, all feed into the final number. Adjusting these levers can move your rate, which is where good advice on structuring the deal pays off. Getting the term and balloon right for the asset's life and your cash flow often matters as much as the headline rate itself.

Why lender choice is the wildcard

The final and often largest variable is which lender assesses your deal. Each of the 80+ lenders Overdrive works with has its own credit appetite, target industries and asset preferences, and these shift with their funding position and business targets. A deal that one lender prices unattractively can be exactly what another is chasing. Placing your application with the lender whose appetite matches your profile is frequently the single biggest driver of a sharp rate, and it is impossible to judge without comparing the market. This is exactly why the same deal, presented to different lenders, can come back with materially different pricing.

Understanding how rates are set is useful, but the practical step is seeing how the factors combine for your specific deal. Overdrive takes one application and compares 80+ banks and non-bank lenders, matching your asset, credit profile and preferred structure to the lenders most likely to price it keenly. Send through your details for an indicative, no-obligation quote and see exactly where your deal lands, rather than guessing from a general benchmark.