Lease Calculator

Created by Tomasz Jedynak, PhD, Mateusz Mucha and Joanna Andrzejewska
Reviewed by Bogna Szyk and Jack Bowater
Based on research by
Loveday Nwanyanwu Lease Accounting Methodology: A theoretical reflection. European Centre for Research Training and Development UK (July 2015)
Last updated: Jun 05, 2023

Our lease calculator helps you determine the monthly and total payments for a lease. In order to do 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. Our lease payment calculator can help you when you are trying to decide whether you should lease or buy. Read this article to find answers to the following questions:

  • What is a lease?
  • What does the lease agreement contain?
  • What is the residual value?
  • How to calculate the costs of the lease?
  • What is more profitable: leasing or buying?
  • What is more profitable: leasing or renting?
  • What is ecoleasing?

Last but not least, in the text below you will find out how to use our incredible lease calculator to make your financial decisions faster and smarter.

What is a lease?

The commonly agreed definition of a lease is that it is a contractual agreement between two parties - the lessee and the lessor - where the former pays the latter for the use of a particular good or asset.

The lessee is the one who uses the good (or more formally: the one who obtains the right to use the asset in return for regular payments).

The lessor is the legal owner of the good in question. Usually, the lessee agrees to follow some additional rules regarding the use of the leased property. For example, in a car leasing agreement, it may be stated that the lessee can use the car only for personal purposes.

Generally, all kinds of personal property or real property can be leased. Common assets to be leased are:

  • cars,
  • buildings, (apartments, family homes etc.),
  • raw lands,
  • furniture,
  • different type of special equipment (e.g. machinery),
  • other types of property.

Under a lease agreement, the lessee is entitled to use an asset in exchange for regular payments (the "leasing rate" in the case of leasing a car or the "rent" in the 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. The lessee needs to abide by additional conditions regulating the proper use of an asset. For example, the contract may specify that you can used the leased car only for business purposes or that you cannot have pets in a leased apartment, etc. Other costs you need 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 and business equipment.

The residual value in leasing

One of the basic terms used in a leasing agreement is the above-mentioned residual value (sometimes referred to as salvage value). Although this term is quite simple to get familiar with, it is often the cause of misunderstanding and mistakes made by lessees.

In the simplest terms, the residual value is the estimated amount of money that an asset will be worth at the end of the leasing period. In other words, the residual value is an estimated price for which the leased asset can be sold for after the end of the leasing period. Formally, residual value is defined as the initial value minus depreciation.

This amount is contained in the leasing contract and has a direct impact on the costs of leasing (see section Example – leasing calculations). The rule of thumb is that the longer the lease period, the lower the residual value. An exception to this rule may be real estate properties, which – due to a general increase in property prices - sometimes may have higher residual values after the lease period.

The lease agreement

Formally, a lease is a legal contract signed by two parties under the contract law of the particular jurisdiction (i.e., state or country). There is no single and universal form or content of the lease agreement. You can, however, point out the following common elements of each lease agreement:

  • Names of the parties of the agreement (the lessee and the lessor),
  • Information necessary to identify the object of a lease (e.g., in a car lease it may be the VIN),
  • Starting date and duration of the agreement,
  • Specific provisions for granting the right to use this object,
  • Provisions for a security deposit and terms for its return,
  • A list of additional conditions (so-called Default Conditions),
  • Provisions regarding the need to provide insurance (the most common coverage areas are: fire, lightning, theft, vandalism, windstorm),
  • Provisions regarding restrictive use,
  • Provisions regarding which party is responsible for maintenance,
  • Conditions for renewal of the contract (if applicable),
  • Contract termination clauses.

In addition, some kinds of lease contracts may have specific clauses required by the state or country law.

How to use our leasing calculator?

Using our leasing calculator is very simple:

  1. First of all, you need to determine the product value (the value of the transaction) of an asset you want to lease. In addition, you can provide the value of your down payment in the form of a fixed amount or as a percentage of the product value.
  2. Secondly, try to estimate the residual value (an appraisal of how much the good will be worth at the end of the lease period) of the asset you want to lease. You can do it either in the form of a fixed value or as a percentage of the initial product value.
  3. Then, you need to provide the interest rate.
  4. And finally, you should put in the lease term in years and months.

The lease payment calculator will estimate your monthly payments. In the advanced mode it will also calculate the total payment on the lease, the total interest to be paid and the total cost to own the leased property.

In conclusion, our smart lease calculator helps you make smart financial decisions. With the mobile version of our application, you are able to use our lease calculator whenever and wherever you want.

Example – leasing calculations

Are you wondering how a lease works? What are the costs of leasing? Or maybe you wonder whether you should lease or buy an asset?

We have prepared an easy to understand example to help you find answers to these questions. After studying this example carefully, you shouldn't have any troubles with understanding the mechanism of leasing. We also believe that thanks to this example you will be able to make smart financial decisions in your financial dealings.

Knowing the basic rules of leasing, let's try to calculate the monthly payments in an example leasing contract.

First of all, let's assume that you want to lease an asset that is worth $30,000 (it is the retail price of an asset you want to buy, in our calculator it is the product value). The cost of leasing is set by the lessor at a fixed rate of 4% (it is the interest rate), the agreed down payment is $5,000, the length of the lease is four years (48 months) and the residual value of a leased asset after this period is set as $14,000.

To calculate the monthly leasing payments in this example you need to do as follows:

  • First of all, calculate the lease amount. It is a difference between the retail price and the down payment. In our example it is:

$30,000 - $5,000 = $25,000

  • Calculate the monthly payment using the following formula:

monthly_payment = (lease_amount * Interest_rate * (1 + Interest_rate) ^ Lease_term - residual_value * Interest_rate) / ((1 + Interest_rate) ^ Lease_term - 1)


monthly_payment = ($25,000 * 0.04 * (1 + 0.04) ^ 48 – $14,000 * 0.04) / ((1 + 0.04) ^ 48 – 1) = 295.04

  • Now you can compute the total sum of payments in the considered leasing agreement (a sum of all monthly payments). The formula is as follows:

Lease_term * Monthly_payment = Total_payments

So, in our example:

48 months * $295.04 = $14,161.64

  • You can also calculate the total interest to be paid (in fact it is the actual cost of leasing). To do so, you need to use the following formula:

Down_payment + Total_Payments + Residual_Value - Product_Value = Total_interest


$5,000 + $14,161.64 + $14,000 - $30,000 = $3161.74

  • Last but not least, you can also calculate the total cost to own a car after lease ends. It is the product value plus total interest. So:

$30,000 + $3161.74 = $33,161.74

This amount shows you the total cost you need to cover in order to own the asset after the leasing period. If you want to know whether it is more profitable to buy or to lease this asset you should compare this amount with the cost of buying this asset for credit (to do so, you can use our personal loan calculator.

Lease vs. rental

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, though: 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 lease an apartment for three years, you will have to pay your monthly rate irrespective of whether you use it or not. Once the lease contract is signed, neither party can deviate from it or they will face penalties. Therefore, it is unlikely that a landlord will lease an apartment to an individual.

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. However, most of us do not have enough cash to buy assets such as cars. We usually need to take a loan.

Wonder which option you should choose? Take a look at the most common differences:

  1. Costs. You might think that leasing a car is a better option in terms of finance, but it is not. Even if your monthly lease rate is lower than the rate of a loan, you are paying a higher interest rate on the lease (if you need to calculate simple interest, you can use our interest calculator. The compound interest calculator allows you to calculate an interest rate in more complex cases). 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.
  2. 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 wanted to terminate the lease contract earlier, you would have to face penalties which could be as costly as sticking to the agreement.
  3. 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.
  4. 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. For a tool for loans, please see our mortgage calculator.


Are you familiar with the term “ecoleasing”? It is worth knowing what it means as in recent years its popularity has grown significantly. Generally, ecoleasing is a type of lease in which a particular good is rented for a certain period of time after which it is returned to the lessor (usually the manufacturer) who then recycles the materials contained in this good.

An example of ecoleasing is a lease of a TV set. In this case, a consumer signs a contract with the TV manufacturer. According to the contract, the consumer has a right to use the TV for e.g. 15,000 hours. After this period he returns the TV to the company, who then recycles it.

Ecoleasing differs from “classical” leasing in the following aspects:

  • It does not require a formal leasing contract to be signed – ecoleasing is similar to common purchase.
  • Ecoleasing is usually done with appliances and other relatively cheap household products. It is hardly ever used for land, real estate, and expensive products. It also doesn't apply to B2B contracts.
  • Usually, the period of ecoleasing is more or less equal to the lifespan of the product. It means that the product can be rented only once before it is returned to the company and recycled.

One of the most significant advantages of ecoleasing is its environmental friendliness – thanks to this solution, fewer materials are wasted - they are recovered and reused instead. In addition, thanks to the recycling process, the manufacturer can produce new devices at a lower expense, so they are cheaper for the customer.

Other financial calculators

Now that you know how to perform lease calculations and how to use our lease calculator, it's high time to find other applications which will help you make smart decisions regarding your personal finances.

  • If you want to find out how long it would take for something to increase by n%, you can use our rule of 72 calculator.
  • The APY calculator, which estimates the Annual Percentage Yield from the interest rate and compounding frequency, is very helpful in comparing bank offers with different compounding periods.
  • If you want to find your sale price or, inversely, the cost you bear, you should use the markup calculator.
  • Another interesting calculator is our cap rate calculator which determines the rate of return on your real estate property purchase.
  • If you want to know how long you have to save to make your dream comes true, use our dream come true calculator.
  • If you're looking to finance the purchase of a new recreational vehicle (RV), our RV loan calculator makes it simple to work out what the best deal will be for you.
Tomasz Jedynak, PhD, Mateusz Mucha and Joanna Andrzejewska
Basic information
Product value
Lease amount
Down payment
Down payment
Residual value
Residual value
Interest rate
Lease term
Monthly payment
Total payments
Total interest
Total cost to own
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