By using an equipment lease calculator, you can determine the costs associated with an equipment lease, including the monthly payment amount, buyout cost, and residual value. Our free equipment lease calculator can provide you with all of that information and is designed to also supply figures for three lease structures: fair market value (FMV), $1 buyout, and 10% buyout.
If you’re considering an equipment lease, I recommend working with a lender like Lendio. It’s a broker with over 75 partnering lenders that can match you to financing options suitable for your business needs. It has flexible credit score, time in business, and revenue requirements and offers competitive starting rates with a high level of personalized service.
Equipment Lease Calculator Inputs
To calculate your equipment lease payment, you’ll need to plug the following figures into our equipment leasing calculator.
Lease Structure
You can use our calculator to determine the costs associated with the following equipment lease structures:
- FMV: This allows you to purchase the equipment for its FMV at the end of the lease term.
- 10% buyout: This is similar to an FMV lease, but it instead allows you to purchase equipment at the end of the lease for 10% of its value.
- $1 buyout: As the name suggests, it allows you to purchase equipment at the end of the lease for $1.
Equipment Price
The figure entered here should be the value of the equipment you are getting. In some cases, the leasing company you work with may provide the option to include other administrative costs with the total equipment price, something that can impact your monthly lease payments.
Down Payment
This is the dollar amount you’ll be paying upfront for the equipment lease at signing. While not always required, some companies will request a minimum down payment percentage based on the price of the equipment. This can generally range anywhere from 10% to 30%, depending on the lender and your qualifications.
For example, a 10% down payment on equipment valued at $100,000 would equate to a $10,000 down payment.
Life of Equipment (in years)
This is the expected useful lifespan—the amount of time the equipment is expected to last—of the equipment being obtained. This is often determined by the type of equipment being leased, the industry you operate in, and the manufacturer’s own estimates and specifications.
Interest Rate
This is the interest rate you will be charged for the lease, which represents the cost of borrowing and is set by the lender. Rates are often determined by the type of equipment you are leasing and your own qualifications. Common qualification requirements include your credit score, time in business, and the strength of your finances.
Lease Length (number of months)
This is the length of time you will be making payments and also the time you’ll be allowed to retain possession and use of the equipment. At the end of this period, you’ll be expected to return the equipment to the leasing company or manufacturer. However, some leases provide the option to renew, extend, or purchase the equipment.
Equipment Lease Calculator Outputs
Once you’ve entered the required inputs into the equipment lease payment calculator, there are various outputs that provide the details regarding the cost of your equipment lease.
Residual Value
This represents how much the equipment will be worth at the end of the lease term. This figure can be determined by the specific type of equipment, information provided by the manufacturer, or guidelines set forth by the leasing company. Equipment with a long expected lifespan will generally have a higher residual value.
Monthly Lease Payments
This is the amount you’ll be obligated to pay for the equipment each month until the end of the lease term. This is evaluated by factors such as the total equipment price, down payment provided, length of the lease term, lease structure, and applicable interest rate.
Total Cost of Lease
This is the total amount you’ll spend on payments for the duration of your lease inclusive of principal and interest. This can be calculated by taking your monthly payments and multiplying it by the length of your lease in months.
Total Cost of Buyout
This references the total expense you will have incurred if you decide to purchase the equipment at the end of the lease. This figure is calculated by taking the sum of the monthly lease payments and the residual value of the equipment.
Equipment Lease Example
Equipment lease costs can vary based on a wide variety of factors and can look different depending on the type of equipment and lease terms you choose. To demonstrate what this might look like, the sample below illustrates how a difference in just the structure of the lease can impact a wide range of costs.
- Equipment price: $50,000
- Down payment: $10,000
- Life of equipment: 15 years
- Interest rate: 8%
- Lease term: 48 months
Fair Market Value | 10% Buyout | $1 Buyout | |
|---|---|---|---|
Residual Value | $26,666.67 | $5,000.00 | $1 |
Monthly Lease Payments | $747.41 | $1,131,91 | $1,220.63 |
Total Cost of Lease | $35,875.81 | $54,331.91 | $58,590.16 |
Total Cost of Buyout | $62,542.47 | $59,331.91 | $58,591.16 |
As you see in this example, FMV offers the lowest monthly payment and the lowest total cost of the lease. However, if you decide to purchase the equipment, it has the highest buyout cost. The highest monthly payments belong to the $1 buyout lease—but its total cost of buyout is the lowest.
Equipment Lease Considerations
You should first determine whether or not an equipment lease is the best option for your business and that it fits within your budget. It’s worth using an equipment lease cost calculator to estimate your payment beforehand. As shown in our example above, different lease structures can result in varying costs.
Also, consider the strength of your qualifications, as it can impact your likelihood of getting approved and the rates and terms you get. Equipment leasing providers use many of the same qualification criteria for loans, such as a review of your credit score, time in business, and business revenue.
Frequently Asked Questions (FAQs)
There are different structures of equipment leases that are commonly used. These typically include the FMV lease, a 10% option lease, and a $1 buyout lease. Other less common options include terminal rental adjustment clause (TRAC) and 10% purchase upon termination (PUT) leases.
In general, it may be better to lease if you need to upgrade equipment frequently, don’t have a large down payment, or want smaller monthly debt payments. Buying equipment may be better if you plan on utilizing it for a long period and want to minimize the total cost of ownership. For more information, check out our guide to equipment financing, where we compare loans and leases.
Equipment leases are available from many banks, credit unions, online lenders, and business loan brokers. If you’re unsure where to start, check out our guide to the best equipment leasing companies to help you find a lender.
Bottom Line
An equipment lease is often cheaper than an equipment loan in terms of monthly payment, plus it can help with short-term needs. That said, calculate the total costs involved to ensure you can make the required payments. Additionally, consider whether you intend to purchase the equipment at the end of the loan or if you’ll return it. Those factors will help you decide whether to lease or buy and what lease structure fits your needs.
