Sat. Aug 13th, 2022
    Lease Payment Formula and Examples

    Lease Payment

    Leasing is financing that is granted to a company or an individual to purchase a property. In return, the signatory of the contract undertakes to pay rent for the duration of the leasing, the costs of setting up the file and an option to buy back the property at the end of the period.

    The redemption value is expressed either as a % of the property financed or as a lump sum, contractually fixed at the time of signing the contract.

    During the life of the leasing, the financing company remains the owner of the asset until the signatory of the leasing contract has exercised its purchase option.

    Read also: Free Cash Flow (FCF) | Explanation, Method of Analysis, Examples, Questions, Answers

    Unlike loans, it is very common for the bank to refuse to give you the interest rate and only show the amount of the rent in its proposal. It therefore becomes difficult to compare leasing proposals, especially if they have different scopes (duration, redemption value, etc.).

    The Formula for Lease Payment

    The formula for Lease Payment is derived by adding the depreciation fee, finance fee and sales tax which is mathematically represented as:

    Lease Payment = Depreciation Fee + Finance Fee + Sales Tax

    Example

    EXAMPLE OF PURCHASING A LEASE VEHICLE in K USD
    Proposal ABC BankProposal DEF Bank
    Amount of the purchase including VAT:56 40056 400
    Monthly rents including VAT:1 6561 225
    Nombre de loyers (en mois)3648
    Number of rents (in months)59 61661 620
    File preparation costs:52224
    Residual value including VAT:5642 820
    Total cost of leasing:60 70264 464
    Rents – Purchase – redemption value – fees2 1302 376
    Interest rate3,63%2,06%
    Interest rate by linearizing fees and residual value (rough estimate)4,83%4,43%
    % of cash value0,010,05

    Sources: PinterPandai, TokoPinter, WikiHow, WallStreetMojo

    Photo credit: Shutterbug75Pixabay