What the implied rate is
A lease quote often shows a rental, a term and an end payment but no interest rate. The implied rate is the rate at which those rentals and the end payment are worth exactly the equipment price today. It is the same idea as the rate implicit in a lease under IFRS 16, which a finance guide defines as the rate that equates the present value of the lease payments and the unguaranteed residual with the asset's fair value plus the lessor's initial direct costs.
This calculator finds that rate for a UK finance lease, then adds your fees to give an APR as an effective annual rate. Rentals you pay at signing count toward the term, and the end payment is made after the last rental.
Worked example: a £50,000 lease at £1,050 a month
A £50,000 lease at £1,050 a month for 60 months, with one rental at signing, a £5,000 end payment and £250 of fees, has an implied rate of 12.36% a year (nominal). The effective annual rate is 13.09%, and the APR with fees is 13.33%.
The rentals total £63,000.00 and with the end payment and fees you pay £68,250.00. The finance charge over the price is £18,250.00, which is 36.5% of the price, or an equivalent flat rate of 7.2% a year.
The quote costs £21.00 a month for each £1,000 of price, and the end payment is 10% of the price.
Rentals in arrears, no end payment and a round trip
With every rental at the end of the month and no fees, the implied rate is 11.96% nominal and 12.64% effective, which is also the APR. With no end payment and a £1,000 rental for 60 months, the implied rate is 7.69%, a flat rate of 4% a year.
The calculator reverses the lease loan calculator. A £50,000 lease at 8% over 60 months with a £5,000 end payment and one rental at signing has a rental of £939.51. Enter that rental here and the implied rate is 8%.
Flat rates and APR
A flat rate charges interest on the full amount for the whole term, so it understates the true cost compared with an APR. The equivalent flat rate shown here is the finance charge divided by the price and the number of years, and it is lower than the implied rate because the balance falls over time.
The APR here is the effective annual rate with your up-front fees included. It is higher than the implied rate when you pay fees. Lenders' own APRs follow their disclosure rules, so use your agreement's figure when it differs.
What this calculator leaves out
It assumes level monthly rentals and one end payment. It does not handle stepped rentals, deposits, VAT, insurance or maintenance included in the rental, or a lessor's initial direct costs. If the rentals and end payment add up to less than the price, there is no positive implied rate and the calculator says so.
To work out a rental from a rate, use the lease loan calculator.
To compare a lease with a loan, use the equipment loan vs lease calculator.
Use the right country page
This page uses UK terms and pounds sterling: APR is the effective annual rate and rentals are shown before VAT. The country choices above the inputs open separate pages. Choosing United States opens the US version, which uses a nominal APR and shows the money factor.
For a US lease, use the US lease interest rate calculator.
Inputs for the UK lease interest rate calculator
Initial rentals paid at signing
Rentals paid when you sign. They count toward the term.
Equipment price
The price the lessor pays, before VAT.
Monthly rental
The regular rental from the quote, before VAT.
Lease term
The number of monthly rentals, including any paid at signing.
End payment or residual
The final amount to keep the equipment, or the value the lessor assumes.
Fees paid at the start
Fees paid up front. They raise the APR but not the implied rate.
CALCULATOR QUESTIONS
UK lease interest rate calculator questions
How do you find the interest rate on a finance lease?
Find the monthly rate at which the rentals and the end payment are worth the equipment price today. For the worked example that rate is 12.36% a year, nominal.
What is the APR on a UK lease?
Here it is the effective annual rate with your up-front fees included. The fees lift the effective rate from 13.09% to 13.33%.
What is the difference between a flat rate and an APR?
A flat rate is charged on the full amount throughout. For the worked example the equivalent flat rate is 7.2%, against an implied nominal rate of 12.36%.
Why does paying a rental at signing change the rate?
Rentals at signing are paid earlier, so the lessor has less of the price outstanding. The worked example's nominal rate is 12.36% with one rental at signing and 11.96% with none and no fees.
What if my rentals add up to less than the price?
Then the implied rate would be negative, and the calculator asks you to check the rental, term and end payment against the quote.