How to Calculate Equipment Lease Payments

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When it comes to operating a business, it might be cheaper to lease equipment rather than purchase it outright. When you lease equipment, you have the option of leasing new equipment when the term is up. This will ensure that your business operates with state of the art equipment instead of having a rapidly depreciating asset sitting in the corner. The method of how to calculate lease payments varies slightly from how payments would be calculated on a purchase loan.

Things You'll Need

  • Algebraic calculator
  • Gather the variables needed for the equation. In order to calculate equipment lease payments, you will need to have the current value and residual value of the equipment, as well as the interest rate that will be charged and the term of the loan. The company that owns the equipment will provide the lease and residual value for your equation.

  • Use the equation associated with calculating equipment lease payments.

    Payment = Present Value - (Future Value / ( ( 1 + i ) ^n) / [ 1- (1 / (1 +i ) ^ n ) ] / i.

    In this equation, "i" represent the interest rate as a monthly decimal.

  • Convert the interest rate to a monthly decimal. This is done because the assumption is made that the interest is compounding monthly. If it was compounding quarterly, then it would be divided by four. So to create an example, assume that a lease is being drawn up for a piece of equipment and that the lender is offering a 6 percent interest rate for a term that is compounding monthly. The equation would be: .06 / 12 = 0.005.

  • Plug the numbers into the equation and calculate the monthly equipment lease payment. Assume someone is renting a machine which has a current value of $20,000 for five years and that the residual value will be $10,000 at the end of the loan. The equation would read:

    $20,000 - [$10,000 / ( (1 + 0.005) ^ 60 ] / [1 - ( 1 / ( 1 + 0.005) ^ 60)] / 0.005 = Monthly Payment

    The result would be $243.34 per month, which is the monthly payment on the leased equipment.

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