Lease Financing for auto-consumers, crunching the numbers is one of the most difficult and
confusing aspects of leasing. Take the finance charge on a lease for instance.
Most people just don’t understand how this is calculated on capitalized cost
AND residual value instead of just the capitalized cost. For most, it seems plainly obvious, just as is the case when purchasing, that a charge should believed on the capitalized cost of the vehicle. Well, no quite! When you lease a
car, you’re only using the car over a specified period of time with the option
of buying the car. The residual value represents the “loan balance” at the end
of the lease. If you add it to the capitalized cost and divide by two, you’ll
get the average capitalized cost outstanding over the lease term. Let us
suppose you’re leasing a car with a capitalized cost of $25,000 and a residual
value of $15,000. You average balance over the lease term, irrespective of how
long.
it is, is $20,000 the sum of the two divided by two Using this sum works because the moneyfactor is the annual interest rate divided by 24, rather than 12. Continuing
with our example and assuming an interest rate of 6% APR: $30,000 X (6 per cent
/ 24) = $75(Capitalized cost + residual value) X (interest rate / 24) = Monthly
finance charge This finance charge is added to the depreciation charge to
calculate the monthly payments on your lease.
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