Lease calculator helps you determine the monthly and total payments for a lease. In order to that you will need to know the initial and residual value of the good that you'd like to lease, the interest rate and the lease term. This lease payment calculator could help you when you are trying to decide lease vs buy.
How to use the lease calculator
It is very simple indeed.
- Determine the transaction and residual value (an appraisal of how much the good will be worth at the end of the lease period) of an asset you want to lease.
- Estimate the interest rate.
- And finally, put in the lease term.
The lease payment calculator will estimate your monthly payment and total payments on the lease.
What is a lease
A lease is an agreement between two parties - the lessee and the lessor - where one party pays the other for use of a particular good or asset. The lessee is the one who uses the good, the lessor is the owner of the good in question. Common assets to be leased are:
Under a lease agreement the lessee is entitled to use a good in exchange for regular payments ("leasing rate" in case of leasing a car or "rent" in case of leasing an apartment). The payments are stipulated in the contract and usually equate to the difference between the initial value of the leased good (called transaction value or capitalized cost) and its residual value. There can be additional conditions regulating proper use of an asset by the lessee, which they need to abide by. For example, the contract can specify that a car can only be used for business purposes or that one cannot have pets in a leased apartment etc. Other costs one needs to consider are: down payments, deposits and other charges imposed by the lessor.
A lease is usually fixed in time, after which the lessee is obliged to return the property to the lessor. Sometimes a lessee has an option to buy the asset from the lessor for its residual value (a percentage of what a new item would cost). This is a popular option with cars but also business equipment.
Lease vs rental
Although the philosophy behind a lease and a rental is basically the same: you pay a certain amount of money for the right to use an asset, there is a difference. A lease agreement is much stricter than a rental contract. Let's look at a simple example: when you rent an apartment you can always move out earlier or maybe pay rent a little later than agreed with your landlord. Also the landlord may change the terms of this agreement with proper notice. One cannot do it under a lease agreement. If you'd lease an apartment for three years, you will have to pay your monthly rate irrespective of whether you use it or not. .
Lease vs buy
The difference between leasing an asset and buying it is essentially the ownership title. When you lease an asset the ownership stays with the lessor, you only have the right to use their asset for a fixed period of time. However, most of us do not have enough cash to buy such assets like cars for example. We will need to take a loan.
Wonder which option you should choose? Take a look about the most common differences:
- Costs. One might think that leasing a car is a better option in terms of finances but it is not. Even if your monthly lease rate would be lower than the rate of a loan you are paying higher interest rate on the lease (if you need to calculate simple interest, you can use our interest calculator). Furthermore, the lessee is often charged with various fees and other extra costs (like lease initiation and disposal fees), which can only add to the total cost.
- Termination. When taking a loan to buy a car you can sell it whenever you want. You can also use the money from the sale to pay the loan balance. If you'd like to terminate the lease contract earlier, you will have to face penalties which could be as costly as sticking to the agreement.
- Equity. At the end of the loan you own a car and can use it to pay for a next one. When leasing, you have to return the car and have to finance the purchase or lease of another car yourself.
- Usage. When buying a car you can drive it as much as you like and you don't have to worry so much about your kids spilling drinks or ice cream on the upholstering (it can however lower the resale value of your car). Under a lease agreement you'll typically have a mileage limit and will have to pay for any damage that is not standard wear and tear.
You can determine the cost of your lease using our lease - calculator. To see an example tool for loans, please see our mortgage calculator.