Lease Calculator
This lease calculator estimates the monthly payment for leasing equipment, a vehicle, or property by separating the cost into two pieces: depreciation (the value you consume) and a finance charge (the lessor's return on the capital tied up). It splits the difference between the asset value and its residual value evenly across the term, then adds a money-factor-style interest charge based on the average of the start and end values. The result shows the monthly payment, the total of all payments, and the embedded finance cost.
Formula
Payment = (V − R) / n + (V + R) · (i / 12) / 2
- V
- Asset (capitalized) value at the start of the lease
- R
- Residual value expected at the end of the lease
- n
- Total number of months = term in years × 12
- i
- Annual interest rate as a decimal (rate% ÷ 100)
How it works
- Enter the asset value (the capitalized cost being leased) and the residual value you expect it to retain at lease end. The calculator subtracts the two and divides by the number of months to get the level depreciation portion of each payment.
- Set the annual interest rate and the lease term in years. The finance charge is computed on the average of the asset value and residual value, so it approximates the interest a lessor earns on the declining balance over the term.
- Read the monthly payment, total cost across all months, and total finance charge. Raising the residual value lowers depreciation but slightly raises the finance charge, while a longer term spreads depreciation over more months.
Worked example
Leasing a $30,000 asset with a $12,000 residual value at a 6% annual rate over a 3-year term.
- Months: n = 3 × 12 = 36.
- Depreciation per month: (30,000 − 12,000) ÷ 36 = $500.
- Finance charge: (30,000 + 12,000) × (0.06 ÷ 12) ÷ 2 = 42,000 × 0.005 ÷ 2 = $105.
- Monthly payment: 500 + 105 = $605.
Monthly payment is $605, total cost over 36 months is $21,780, and the total finance charge is $3,780.
Frequently asked questions
- What is residual value and why does it matter?
- Residual value is the estimated worth of the asset when the lease ends. A higher residual means you finance less depreciation, which lowers the monthly payment, since you only pay for the value you actually use during the term.
- Does this lease calculator include taxes, fees, or a down payment?
- No. It models only the depreciation and finance charge that make up the base monthly payment. Sales tax, acquisition or disposition fees, and any capitalized-cost reduction (down payment) should be added separately for a complete out-the-door figure.
- How is leasing different from a loan?
- A loan finances the full purchase price and you keep the asset afterward, while a lease only finances the depreciation between the start value and residual value. That is why lease payments are usually lower than loan payments on the same asset.
- How does the term length affect my payment?
- A longer term spreads the depreciation across more months, which reduces the depreciation portion of each payment. The finance charge per month stays roughly the same because it is based on the average of the asset and residual values, so longer leases generally lower the monthly payment but raise total finance cost.