Lease Calculator

Down Payment:

Residual Value:

Monthly Payment:

Total Payments:

Total Interest:

Total Cost to Own:

1. What is the Lease Calculator?

Definition: The Lease Calculator estimates the down payment, residual value, monthly payment, total payments, total interest, and total cost to own for a leasing contract, based on product value, lease amount, residual value, interest rate, and lease term.

Purpose: This tool helps users evaluate the financial implications of leasing an asset (e.g., a car or equipment), aiding in decisions about leasing versus buying by comparing total costs and monthly obligations.

2. How Does the Calculator Work?

The calculator uses the following formulas:

$ DP = PV - La $

$ MP = \frac{La \times i \times (1 + i)^n - RV \times i}{(1 + i)^n - 1} $

$ TP = n \times MP $

$ TI = DP + TP + RV - PV $

$ TC = PV + TI $

Where:

$ DP $: Down payment ($);
$ PV $: Product value ($);
$ La $: Lease amount ($);
$ RV $: Residual value ($);
$ i $: Monthly interest rate (decimal, annual rate / 12);
$ n $: Lease term (months);
$ MP $: Monthly payment ($);
$ TP $: Total payments ($);
$ TI $: Total interest ($);
$ TC $: Total cost to own ($).

Steps:

Enter product value, lease amount, residual value, annual interest rate, and lease term (months).
Calculate down payment: $ DP = PV - La $.
Calculate monthly interest rate: $ i = \frac{\text{annual rate}}{12} $.
Calculate monthly payment using the lease formula.
Calculate total payments: $ TP = n \times MP $.
Calculate total interest: $ TI = DP + TP + RV - PV $.
Calculate total cost to own: $ TC = PV + TI $.
Display results in currency format.

3. Importance of Lease Calculation

Calculating lease payments is essential for:

Financial Planning: Determines monthly and total costs, helping assess affordability compared to buying.
Cost Comparison: Evaluates total interest and cost to own, aiding decisions between leasing and purchasing via loans.
Budget Management: Ensures lease payments fit within monthly budgets, considering lease amount and residual value impacts.

4. Using the Calculator

Example: Calculate the lease payments for an asset worth $30,000 with a $25,000 lease amount, $14,000 residual value, 4% interest rate, and 48-month lease term:

Product Value ($ PV $): $30,000; Lease Amount ($ La $): $25,000;
Down Payment ($ DP $): $ 30000 - 25000 = 5000 $;
Residual Value ($ RV $): $14,000;
Interest Rate: 4% ($ i = 0.04 / 12 \approx 0.003333 $); Lease Term ($ n $): 48;
Monthly Payment ($ MP $): $ \frac{25000 \times 0.003333 \times (1.003333)^{48} - 14000 \times 0.003333}{(1.003333)^{48} - 1} \approx 295.04 $;
Total Payments ($ TP $): $ 48 \times 295.04 \approx 14161.74 $;
Total Interest ($ TI $): $ 5000 + 14161.74 + 14000 - 30000 = 3161.74 $;
Total Cost to Own ($ TC $): $ 30000 + 3161.74 = 33161.74 $;
Result: Down Payment: $5,000.00; Residual Value: $14,000.00; Monthly Payment: $295.04; Total Payments: $14,161.74; Total Interest: $3,161.74; Total Cost to Own: $33,161.74.

5. Frequently Asked Questions (FAQ)

Q: What is a lease?
A: A lease is a contract allowing use of an asset (e.g., a car or equipment) for a fixed period in exchange for periodic payments, with an option to purchase at the residual value.

Q: How does residual value affect lease payments?
A: A higher residual value reduces monthly payments, as it lowers the amount financed over the lease term, but increases the cost to own if purchasing the asset.

Q: Should I lease or buy?
A: Compare the total cost to own from leasing with the cost of buying. Leasing may offer lower monthly payments but higher long-term costs due to interest and residual value.