How to Calculate a Lease Rate Factor

The lease rate factor is used by equipment lessors as a means of determining interest payments, using a simple formula of interest rate divided by 24. The result is a quick way to calculate any changes in the leasing agreement. A few simple steps will help you calculate lease rate factor and apply it to leasing information to determine monthly payments.

Instructions

1

Determine the value of the equipment at the end of the leasing term. To calculate this, take the manufacturer's suggested retail price (MSRP) and multiply it by the residual value. For example, a car with an MSRP of $20,000 and a residual value of 60 percent at the end of a leasing term will have an end value of $12,000.

2

Calculate the value of the equipment that will be used during the leasing term. This is determined by subtracting the end value by the MSRP. Using the example above, the end value of the car ($12,000) subtracted from the MSRP ($20,000) yields a value of $8,000.

3

Divide the value of the equipment you're using by the number of months in the lease. For example, if a car is being used for 24 months, the monthly payment amount before additional charges will be $8,000 divided by 24, or $333.

4

Calculate the lease rate factor of the equipment by taking the interest rate and dividing it by 24. An interest rate of 9 percent would have a lease rate factor of .00375. Convert the percentage to a decimal before calculating the amount (9 percent would be .09).

5

Add the MSRP of the equipment to the end value, then multiply this amount by your lease rate factor to determine the monthly amount owed in interest. A car with a starting value of $20,000 and a residual value of $12,000 would have monthly interest of $32,000 multiplied by .00375, or $120.

6

Add the results of Steps 3 and 5 (monthly payment plus monthly interest) to determine the total monthly payment before taxes.