What the implied rate is
A lease quote often shows a payment, a term and a residual but no interest rate. The implied rate is the rate at which those payments and the residual are worth exactly the equipment cost 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 US equipment lease, then adds your fees to give an APR. Payments you make at signing count toward the term, and the residual is paid at the end.
Worked example: a $50,000 lease at $1,400 a month
A $50,000 lease at $1,400 a month for 36 months, with one payment at signing, a $5,000 residual and $250 of fees, has an implied rate of 6.56% a year. The effective annual rate is 6.76%, and the APR with fees is 6.88%.
The payments total $50,400.00 and with the residual and fees you pay $55,650.00. The finance charge over the cost is $5,650.00, which is 11.3% of the cost, or an equivalent flat rate of 3.6% a year.
The quote costs $28.00 a month for each $1,000 of equipment cost, and the residual is 10% of the cost. The money factor equivalent, the rate divided by 2,400, is 0.00273.
Advance payments, no residual and fees
Moving the payments to the end of each month with no payment at signing lowers the implied rate to 6.24%. Three payments at signing, with a $1,380 payment, gives 5.72%.
With no residual and a $1,550 payment, the implied rate is 7.7% and the APR is the same because there are no fees. Adding $2,500 of fees to the default quote lifts the APR to 9.94% while the implied rate stays at 6.56%.
Money factor and lease rate factor
A money factor is a rate quoted as a small decimal, and multiplying it by 2,400 gives an approximate annual rate. It is a close estimate rather than an exact conversion, so this calculator solves the exact implied rate and shows the money factor equivalent for comparison. The payment per $1,000 of cost is a rate factor that equipment lessors often quote.
What this calculator leaves out
It assumes level monthly payments and one residual or buyout at the end. It does not handle stepped payments, security deposits, taxes, insurance or maintenance included in the payment, or a lessor's initial direct costs. If the payments and residual add up to less than the cost, there is no positive implied rate and the calculator says so.
To work out a payment from a rate, use the equipment lease calculator.
To compare a lease with a loan, use the equipment loan vs lease calculator.
Use the right country page
This page uses US terms and US dollars: APR is the nominal annualised rate, and the money factor is shown. The country choices above the inputs open separate pages. Choosing United Kingdom opens the UK version, where APR is the effective annual rate.
For a UK lease, use the UK lease interest rate calculator.
Inputs for the US lease interest rate calculator
Advance payments at signing
Payments made when you sign. They count toward the term.
Equipment cost
The price the lessor pays, before sales tax.
Monthly lease payment
The regular payment from the quote, before sales tax.
Lease term
The number of monthly payments, including any made at signing.
Residual or buyout
The final amount to keep the equipment, or the value the lessor assumes.
Documentation and other fees
Fees paid up front. They raise the APR but not the implied rate.
CALCULATOR QUESTIONS
US lease interest rate calculator questions
How do you find the interest rate on a lease?
Find the monthly rate at which the payments and the residual are worth the equipment cost today. For the worked example that rate is 6.56% a year.
What is the APR on an equipment lease?
Here, it is the nominal annualised rate with your up-front fees included. The fees lift the rate from 6.56% to 6.88%.
How do you convert a money factor to a rate?
Multiply the money factor by 2,400 for an approximate annual rate. A money factor of 0.00273 equals the 6.56% implied rate here.
Why does paying in advance change the rate?
Payments at signing are made earlier, so the lessor has less of the cost outstanding. The worked example's rate is 6.56% with one payment at signing and 6.24% with none.
What if my payments add up to less than the cost?
Then the implied rate would be negative, and the calculator asks you to check the payment, term and residual against the quote.