Estimate a payment or inspect a quoted rate
An equipment lease lets a business use machinery, vehicles, computers or tools for a fixed term in return for regular payments, with the equipment either returned or bought at the end. This calculator answers the two questions most people have. In the first mode you enter the asset value, the residual value, the term and a rate, and it returns the monthly payment. In the second you enter a payment from a quote and it works backward to the interest rate the quote implies, so you can compare an offer with a loan or with another lessor.
The default example is a 20,000.00 asset with a 8,000.00 residual over 36 months. At 6% a year, paid at the end of each month, the payment is 405.06. Entered the other way, a 400.00 quote on the same asset and term implies a nominal rate of about 5.58% a year. Everything below explains where those numbers come from and what they leave out.
Equipment lease inputs and what residual value means
The asset value is what the equipment costs when new. The residual value is what it is expected to be worth, or can be bought for, when the lease ends. The lessee pays for the part of the asset that is used up, plus interest on the amount still financed, so a higher residual means lower payments and a lower residual means higher ones. Every payment pays interest on the remaining financed value and reduces it a little, and by the last payment the financed value has fallen to the residual.
Three other inputs are optional. A down payment reduces the amount financed. A fee can be paid in cash at the start or added to the amount financed. A security deposit is held and returned at the end. They are kept separate on purpose, because each one changes the cash you pay at a different time.
A 1 buyout, 10% of the value or fair market value
Leases name the end-of-term price in different ways. A nominal buyout of 1 means the equipment is effectively purchased through the payments, so the residual is close to zero and the payment is high: 608.41 a month on the example. A residual of 10% of the asset value, 2,000.00, gives 557.59. A fair market value residual is an estimate of what the equipment will be worth then, so there is no formula for it; enter your own figure or the one in the quote. The calculator never predicts future values and never promises that a buyout or a purchase option is available. The contract decides.
Payment formula and worked examples
Let A be the amount financed (the asset value less any down payment, plus any financed fee), R the residual, n the number of months and r the monthly rate, which is the annual rate divided by 12. For payments at the end of each month the payment is (A − R ÷ (1 + r)ⁿ) × r ÷ (1 − (1 + r)⁻ⁿ). The first part is the amount that has to be repaid after setting aside the discounted residual, and the second turns it into level monthly payments. For the default example, r is 0.005, n is 36 and the payment is 405.06. Over 36 payments that is 14,582.28. Adding the 8,000.00 residual and taking away the 20,000.00 financed leaves a modelled finance charge of 2,582.28.
The zero-rate case
With a 0% rate there is no interest, so the payment is simply the amount financed less the residual, divided by the number of months. A 12,000.00 asset with a 2,000.00 residual over 10 months costs 1,000.00 a month, 10,000.00 in total, and the finance charge is 0.00.
Payments in advance and in arrears
Many leases take the first payment at the start of the term, which is payment in advance. Paying earlier means the lessor holds your money for longer, so the same rate gives a lower payment: 403.05 instead of 405.06 on the example. The calculator divides the end-of-month payment by 1 + r to get the advance payment, and the schedule shows the first payment at month 0 and the last at month 35. Real contracts add rules of their own, so treat the figure as a model of the timing you choose.
Read an equipment lease schedule
The schedule lists each month with the opening financed value, the interest charged, the payment and the closing value. Early rows show more interest because the financed value is highest then; later rows show less. At the end of the schedule the closing value equals the residual. A separate final row shows that residual, labelled as the asset value returned to the lessor if you return the equipment, or as a cash payment if you buy it. The chart plots the remaining financed value alongside cumulative interest and cumulative payments, and the table underneath holds the same numbers.
Use the schedule to check a quote line by line. If a lessor's payment is higher than the calculator gives for the same asset, residual and term, the difference is either a higher rate, a lower residual or fees that are not in the rate, and the implied-rate mode will tell you which. The export is a CSV file that opens in a spreadsheet and names the timing and the end option on each row. Compare the totals, not only the first payment.
Return the equipment or pay a buyout
There are two ways a lease can end in this model. If you return the equipment, the lessor keeps it and you pay nothing more; your total cash is the down payment, the upfront fee and the payments. If you buy it, you pay the residual once at the end, so the total is higher by that amount. On the example the buy case adds 8,000.00 to 14,582.28, for a total of 22,582.28. The comparison tool shows both side by side. It is a modelled assumption: it does not mean a purchase option exists, that the residual is the price you would be offered, or that you would own the equipment under any particular law.
Refundable security deposit and down payment
A down payment and a security deposit look similar on the day you sign and behave very differently after that. A 2,000.00 down payment lowers the amount financed to 18,000.00, which lowers the payment to 344.22, and you do not get the money back. A 2,000.00 security deposit leaves the financed amount at 20,000.00 and the payment unchanged at 405.06, and the deposit comes back at the end, so it is shown separately and never counted as a cost. A fee paid in cash is a cost that does not change the payment. A fee added to the amount financed raises the payment instead, as in the 300.00 example that lifts the financed amount to 20,300.00.
Interest rate, effective rate and fee limits
In the second mode the calculator finds the monthly rate at which the discounted payments and the discounted residual add up to the amount financed. It reports the nominal annual rate (the monthly rate times 12) and the effective annual rate, which includes compounding. For a 400.00 payment the nominal rate is 5.581% and the effective rate is 5.726%.
Read this rate with care. It is model-implied: it uses the asset value, residual, term, timing and payment you entered and nothing else. It leaves out upfront fees and the security deposit, so it is not a statutory annual percentage rate and it is lower than the true cost of a lease with significant fees. Some quotes cannot be solved. If the payments and residual add up to less than the amount financed, the quote implies a negative rate, and the calculator says so instead of showing zero; a 300.00 payment on the example does exactly that. If the implied rate is above 100%, the page reports that as out of range.
The implied rate responds sharply to the residual. Raise the residual on the example from 8,000.00 to 9,000.00 and the same 400.00 payment implies about 7.63% instead of 5.58%, because the residual is covering more of the asset and each payment has less to repay. If a lessor quotes a low payment and a high residual together, solve for the rate and ask which fees or assumptions explain the gap.
Compare terms before signing
A longer term lowers the payment and raises the total. On the example, 24 months costs 571.85 a month, 36 months costs 405.06 and 48 months costs 321.82, but the total paid rises from 13,724.34 to 14,582.28 to 15,447.38. Before you sign, work through a short checklist of your own. Ask what the residual is and who sets it. Ask which fees are paid up front and which are added to the lease. Ask whether the first payment is due at signing. Ask what happens if you return the equipment early or want to buy it. Ask who pays for insurance, maintenance and taxes. Then enter each answer here and compare the totals, not only the monthly payment. A shorter lease often comes with a higher residual relative to the asset's value, so ask for the residual at each term instead of reusing one figure.
Equipment and auto leases use different models
A car lease usually quotes a money factor and a residual percentage, a method the auto lease calculator follows. This page uses a plain discounted cash flow model that suits business equipment, so the two will not always agree, and neither is a lease accounting classification. To see how the equipment's value falls over time, estimate its depreciation; to see whether the payments fit your plan, include the lease in your break-even. A general time-value check is available in the BA II Plus calculator.
Use this page for machinery, tools, office equipment and vehicles used in a business, and the auto lease page for a consumer car quote. Mixing the two models is the most common reason a calculated payment does not match a quote.
Equipment lease questions
Can I find a lease interest rate from the payment?
Yes, under the asset value, residual, term and timing you enter. The calculator searches for the rate that makes the discounted payments and residual equal the amount financed. When no sensible rate fits, such as a negative or above-100% result, it says so instead of returning a number. Enter the exact payment from the quote, including whether it is due at the start or the end of the month, and compare the nominal and effective rates with a loan quote for the same asset.
What is a 1 buyout?
In this model it is a residual of 1 paid at the end, which makes the payments cover almost the whole asset. Whether your contract gives you that right, and on what terms, is set by the contract and not by the calculator. Ask the lessor whether the buyout is mandatory, optional or conditional, and whether the payments already include sales tax.
Does fair market value mean 10%?
No. Fair market value is an estimate of what the equipment will be worth when the lease ends. Enter your own estimate or the figure in the quote; the calculator does not predict it. If a quote lists a percentage, use that percentage of the asset value and treat it as an estimate.
Are payments in advance cheaper?
At the same positive rate and values, earlier payments lower the modelled payment, as the example shows. Contracts can add rules that change this, so compare real quotes with the timing each one uses. The saving is small on a short lease and grows with the rate and the term.
Can I export a schedule to Excel?
You can download the schedule as a CSV file, which opens in Excel or any spreadsheet program. The page does not offer a workbook or template.