How Is a Lease Payment Worked Out?
A lease payment is not rent on the full price. You mainly pay for the value the item loses while you use it, plus a finance charge.
What is the Lease Calculator?
A lease payment has two parts. The depreciation part spreads the fall in value, from the price down to the residual value at the end of the lease, over the lease months. The finance part charges interest on the price plus the residual value together. Adding the two parts gives the monthly lease payment.
How to use it
- Enter the price and the expected residual value as a percentage of the price.
- Enter the lease term in months and the annual APR.
- Press Calculate to see the depreciation part, finance part and monthly payment.
Worked example
Price 30000, residual value 50%, term 36 months, APR 4%: residual value 15000, depreciation part about 416.67, finance part 75, monthly payment about 491.67.
Why can leasing be cheaper per month than buying?
Because you are not paying off the full price, only the drop in value over the lease term plus finance charges. If the item holds its value well, that drop is small and the monthly payment can be much lower than a loan payment on the same item, though you do not own it at the end.
Frequently asked questions
What is residual value?
It is the expected value of the item when the lease ends. A higher residual value means less depreciation to pay for, so the monthly payment is lower.
Do I own the item at the end?
Not automatically. At the end of a lease you usually return it, buy it at its residual value, or start a new lease, depending on the agreement.