Equipment Lease Calculator (Financial Lease Payment)

How it works

Payment = [C − D − RV × (1 + i)⁻ⁿ] × i ÷ [1 − (1 + i)⁻ⁿ] ÷ (1 + i if paid in advance) · C = equipment cost, D = down payment, RV = residual (purchase option) = C × residual %, i = annual rate ÷ 12, n = months · finance charge = D + payments + RV − C

In a financial (capital) lease — called leasing financiero in Spanish-speaking markets — the lessor buys the equipment and you pay it off over the term, with a purchase option (residual value) to keep it at the end. The payment is an annuity on the cost minus the present value of that residual, and because lease rents are usually paid at the start of each month, the in-advance payment is divided by one more period of interest. The finance charge shows what leasing costs above buying for cash; compare it with a bank loan, and remember that in many countries lease payments are tax-deductible business expenses.

Worked example

Equipment costing 50,000 is leased for 36 months at 9% (0.75% a month) with a 10% purchase option (5,000) and payments in advance. The present value of the option is 5,000 × 1.0075⁻³⁶ = 3,820.74, leaving 46,179.26 to finance; the end-of-month payment on that would be 1,468.49, and paying in advance divides it by 1.0075, giving 1,457.56 a month. The 36 payments total 52,472.03; buying the equipment at the end brings the total to 57,472.03, a finance charge of 7,472.03, and the lease rate factor is 0.02915.

Sources: Corporate Finance Institute — Capital lease vs operating lease · Wikipedia — Finance lease

Frequently asked questions