Lease Calculator
Calculate monthly lease payments for any asset — equipment, vehicles, or commercial real estate. Enter the asset value, residual value percentage, interest rate, and term to see the exact lease payment breakdown: depreciation component, finance charge, and total monthly cost. Compare lease against buying to see which makes financial sense for your situation.
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How It Works
Depreciation is the difference between the negotiated cap cost and the residual value, divided by the lease term. This is the core of any lease payment — you pay only for the portion of the asset's value you consume.
Depreciation = (Cap Cost - Residual Value) / Term($100K - $20K residual) / 36 = $2,222/mo depreciationThe finance charge is calculated on both the cap cost and residual value because the lessor is financing the entire asset risk, not just the depreciating portion. Multiply their sum by the money factor.
Finance = (Cap Cost + Residual) × Money Factor($100K + $20K) × 0.00250 = $300/mo finance chargeThe total monthly lease payment is the sum of depreciation and finance charge. Unlike a loan payment which always includes principal paydown, a lease payment only builds equity if you purchase at the end.
Monthly = Depreciation + Finance Charge$2,222 + $300 = $2,522/mo for a $100K assetHigher residual values dramatically lower lease payments because less depreciation is charged. A 30% residual versus a 20% residual on a $100,000 asset over 36 months reduces the monthly payment by $278.
Payment change = (Residual Difference × Asset Value) / Term30% vs 20% on $100K: $2,244 vs $2,522/mo (-$278)The calculator compares total lease cost (all payments plus down payment) against total loan cost for buying (all payments). Leasing is cheaper if you return the asset. Buying is cheaper if you keep the asset long-term.
Lease total: Monthly × Term + Down | Buy total: Loan payment × Term$100K asset: lease 3yr total $90,792 vs buy $108,432Divide the total lease cost by the term to get the monthly all-in cost of using the asset. Compare this against the productivity or revenue the asset generates to calculate the return on leasing.
Monthly asset cost = Total Lease Cost / Term$90,792 / 36 = $2,522/mo — compare to asset revenueQuick Reference
Common examples — verify instantly above.
$50K asset, 20% res, 5%, 36mo
Monthly lease payment
$1,194/mo
$100K asset, 20% res, 6%, 48mo
Monthly lease payment
$2,118/mo
$100K, 30% vs 20% residual
Monthly payment difference
$1,830 vs $2,118 (-$288/mo)
Finance charge
$120K cap+residual × 0.0025
$300/mo
Depreciation only
$80K - $20K over 36 months
$1,667/mo
Lease vs buy
$100K at 6%, 36 months
Lease saves ~$18K over term
APR to MF
6% APR
0.00250 money factor
Total lease cost
$2,118/mo × 36 months
$76,248 total
Tips & Shortcuts
Negotiate the purchase price (cap cost) of the asset aggressively before discussing lease terms. Every dollar off the cap cost reduces your payment for the full lease term.
Compare the effective monthly cost of leasing versus buying. For rapidly obsoleting technology, leasing is almost always better — the residual risk belongs to the lessor.
For tax purposes, consult your accountant about operating lease deductions versus capital lease and Section 179 depreciation for purchases. The tax impact can be significant.
Check the lessor's reputation for handling end-of-lease procedures. Fair market value disputes at lease end are a common source of unexpected costs.
Build in a purchase option at the beginning of the lease if there is any chance you will want to keep the asset. Adding a purchase option later is typically not possible.
For commercial real estate leases, negotiate free rent periods, tenant improvement allowances, and renewal options upfront. These are standard negotiating points in commercial leases.
Common Mistakes to Avoid
Comparing monthly lease payment to loan payment without looking at total cost
A lease has lower monthly payments but no equity at the end. Compare total lease cost (all payments) against total loan cost plus remaining asset value at the end of the same period.
Not understanding what happens at lease end
At lease end you have three options: return the asset, purchase at residual price, or renew. Know your options and the residual purchase price before signing. Surprises at lease end are common.
Underestimating the cost of excess wear-and-tear charges
Equipment and vehicle leases define acceptable wear. Damage beyond normal use is charged at lease end. Understand what constitutes excess wear and document the asset's condition at signing.
Missing the tax advantage by choosing the wrong lease structure
Operating leases allow full payment deduction. Capital leases must be depreciated. The optimal structure depends on your tax situation — involve your accountant before signing any commercial lease.
Not comparing multiple lessors for equipment leasing
Equipment leasing rates and residual values vary by 2% to 3% between lessors. Getting 3 quotes takes little time and can save thousands on large equipment leases.
Leasing assets you intend to modify or customize heavily
Leased assets must generally be returned in original condition. Heavy customization is typically not allowed or must be reversed at lease end at your cost. Buy assets you plan to modify significantly.
Frequently Asked Questions
Equipment lease payments are calculated from three variables: the capitalized cost (asset value minus down payment), the residual value (estimated worth at lease end), and the money factor (interest rate divided by 2,400). The monthly payment covers depreciation (cap cost minus residual divided by months) plus a finance charge (cap cost plus residual multiplied by money factor).
Equipment residuals depend on the asset type and useful life. Technology equipment often has 15% to 25% residuals due to rapid obsolescence. Industrial machinery may retain 30% to 50%. Vehicles typically fall in the 45% to 65% range. Your lessor sets the residual — a higher residual means lower payments.
Leasing is better when you need assets that obsolete quickly (computers, technology), when you need to preserve capital for operations, when the tax deduction for lease payments is more valuable than depreciation, or when you need flexibility to upgrade equipment at lease end.
Yes. Business lease payments are typically fully deductible as an operating expense, unlike purchases which must be depreciated over multiple years. This makes leasing cash-flow positive relative to buying in the short term, especially for businesses with high tax rates.
In an FMV lease, you return the equipment at lease end or purchase it at its fair market value. The lessor retains the residual risk. FMV leases have lower monthly payments because the lessor sets the residual higher. This is the most common equipment lease structure.
The residual value is generally set by the leasing company based on the asset type and market data. However, you can sometimes negotiate the cap cost (purchase price), money factor, and fees. For vehicle leases, some dealers have flexibility on the cap cost but not the residual set by the manufacturer's captive finance company.
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