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.
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 OF PURCHASING A LEASE VEHICLE in K USD|
|Proposal ABC Bank||Proposal DEF Bank|
|Amount of the purchase including VAT:||56 400||56 400|
|Monthly rents including VAT:||1 656||1 225|
|Nombre de loyers (en mois)||36||48|
|Number of rents (in months)||59 616||61 620|
|File preparation costs:||522||24|
|Residual value including VAT:||564||2 820|
|Total cost of leasing:||60 702||64 464|
|Rents – Purchase – redemption value – fees||2 130||2 376|
|Interest rate by linearizing fees and residual value (rough estimate)||4,83%||4,43%|
|% of cash value||0,01||0,05|