A lease is a legal contract between a lessee, the person leasing and a lessor, the person leasing the product out. Calculating the terms of a lease agreement is usually straightforward, but does require calculations factoring in the amount and length of the lease, deposits and interest accrued over the life of the lease. A basic calculation is used for automobiles, apartments, homes and other products that can be leased.
Things You'll Need
- Notepad and pen
Determine the length of the lease. Leases range in terms of months or years. Convert the years of the lease into months. For example, a 1-year lease would be 12 months. Write this number down.
Write down the value of the leased product. For example, a car that is being leased has a value or price of $15,000.
Figure out the lease interest rate. When the lease is through a bank, the interest rate is determined based on the lessee’s current credit standing. Private leases are up to the discretion of the lessor in terms of the amount of interest charged. Check with local regulations and state laws regarding interest rate restrictions on loans and lease agreements prior to setting a private rate. Write down the interest rate amount once it is determined.
Add any administrative fees associated with the lease. Administrative fees include acquisition fees, charges for running background and credit checks, insurance audits and time spent acquiring the leased property. An automobile lease may factor in some of these fees as well as costs to transport the vehicle to a dealership.
Factor in the security deposit based on the value of the product. If leasing through a bank, determine the minimum deposit percentage required to obtain financing approval. Some banks require higher security deposits based on a person’s credit history. When negotiating a private lease agreement, determine a security deposit based on a percentage, such as 5 percent.
Add the value of the leased product and any administrative fees. Deduct the price of the security deposit from the total amount. Multiply the remaining amount by the interest rate. You are left with the amount of interest charged monthly. Add the interest total to the remaining total to calculate the total cost of the lease. Divide the total cost by the lease term to determine the monthly payment.