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How Is the Lease Payment Calculated

## How Is the Lease Payment Calculated

In the world of leasing cars, the lease payment structure is linear with the monthly payment number calculated by multiplying the number of months left on the lease by the month-to-month lease rate. This payment structure is prevalent across all of the major car manufacturers: from Toyota to Tesla.

### Rate

Let us take the example of John, who is planning to buy a car on lease. The lease will be for a period of 36 months and charged an annual interest rate of 6%. John managed to negotiate the selling price to be \$26,000 with a down payment of \$4,000 and an outstanding loan balance of \$5,000. The car is expected to have a residual value of \$16,500 at the end of 36 months from now. The applicable sales tax rate is 5%. Determine the monthly lease payment for John.Auto leases enable people to drive new cars for a short term while under warranty, and without the financial burden associated with new car purchases. However, it generally costs more to lease a new car for a specific time period than it does to own it (assuming the cost of ownership is prorated over its expected life). Leasing used cars is possible, but not as prevalent. There are many factors to consider in an auto lease, such as the initial down payment, the amount of the monthly payment, the term of the lease, and the average accumulated miles in a year. One characteristic that is unique to car leasing is something called the money factor, which is an alternative method of presenting the amount of interest charged on a lease with monthly payments. Money factor, sometimes called "lease factor" or "lease fee," can be translated into the more common annual percentage rate (APR) by multiplying it by 2,400.

There are other factors that determine your lease payments, such as taxes and interest rate. They vary greatly depending on the person and where they are located, however. You can consult your bank or dealership to get an idea for what to expect in those areas. The above list represents the most significant factors as well as some tips on how you can keep your monthly payments lower. Make sure to do all your homework and research before signing a lease, and enjoy your new car! FV: The future value or a cash balance you want to attain after the last payment is made. If fv is omitted, it is assumed to be 0 (the future value of a loan, for example, is 0). For example, if you want to save \$50,000 to pay for a special project in 18 years, then \$50,000 is the future value. You could then make a conservative guess at an interest rate and determine how much you must save each month. If fv is omitted, you must include the pmt argument. (Source: www.cradleaccounting.com)

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