Big Blue Raises Rates on Low Rate Financing Deal

Published: May 18, 2006

by Timothy Prickett Morgan

After mothballing its Low Rate Financing deal at the end of 2005, IBM brought it back to life in mid-January, offering customers with squeaky-clean credit very attractive 2.9 percent financing rates on its servers. This was considerably lower than the prevailing street prime interest rates, which were around 7.5 percent at the time. Last week, IBM jacked the rates up by 2 points.

Under the Low Rate Financing deal, which is offered by IBM's Global Financing unit, customers can finance deals ranging in size from $1,000 to $1 million for System i5, System x, and System z servers as well as storage and printers; customers doing deals for System p boxes can finance up to $2 million of gear. Retroactive to May 1, IBM is now charging a 4.9 percent interest rate for customers who meet its "Best Plus" credit rating on leases that range from 24 to 36 months and which have a $1 end-of-lease purchase option. IBM has also raised the financing rates on its software and Business Consulting Services to 5.2 percent, and the rate on Integrated Technology Services is now 6.35 percent.

After the Federal Reserve Bank made a quarter of a point increase in the Federal short-term funds rate this week (to 5 percent), the prime rate charged by banks rose to an average of 8 percent. While it may seem like IBM has raised rates for its financing much faster than the financing world at large, the truth is that earlier in the year, IBM was so wickedly generous with its interest rates--at least for customers whose credit is so good they probably didn't need to borrow money in the first place--that this latest change puts it more in line with what banks are charging.