Equipment Lease Calculator: Calculating Your Lease Payment & Examples
This article is part of a larger series on Business Financing.
Our equipment lease calculator allows you to estimate the costs of a potential equipment lease. You can calculate costs using the three most common lease types: fair market value, 10% buyout, and $1 buyout. Our calculator will show you the residual value, estimated monthly lease payments, the total cost of the lease, and the total cost of the buyout.
How the Equipment Leasing Calculator Works
Our equipment lease calculator will show you the estimated costs involved with an equipment lease.
Inputs
- Select type of lease: You will choose one of the three types:
- Fair market value: This lets you rent equipment, with the option to either purchase the equipment at fair market value at the end of the lease or return it. This type will have the lowest monthly payments but the highest interest rates because the lessor has an increased risk of having to find another renter for the equipment.
- 10% buyout: This allows the borrower to make payments and have the option to purchase the equipment for 10% of its initial value at the end of the lease. However, the borrower would also have the option to walk away at the end of the lease, forgoing the 10% buyout and returning the leased equipment.
- $1 Buyout: Similar to an equipment loan, borrowers make payments to rent the equipment and, at the end of the lease, have the option to purchase the equipment for $1. Interest rates will typically be the lowest with this type of lease, and it should be used when you’re sure you want to own the equipment at the end of the lease.
- Price of equipment: This is the price or value of the equipment at the time of the lease.
- Down payment: This is the amount of money you’re putting down at the start of the lease.
- Interest rate: The interest rate being charged for the lease.
- Life of equipment in years: This isn’t the length of the lease and is instead the estimated life expectancy of the equipment at the start of the lease.
- Number of months: This is the length of the lease. The equipment is either purchased or returned at the end of this term.
Outputs
- Residual value: This is the remaining cost of the buyout at the end of the lease. Otherwise known as the remainder, you need to pay to purchase the equipment at the lease end.
- Monthly lease payments: This is the estimated monthly lease payment for the duration of the lease.
- Total cost of lease: This is the estimated amount you will spend on payments throughout the lease. It is approximately the estimated monthly payment multiplied by the number of months of the lease, although rounding in the lease payment formula can make these numbers slightly different.
- Total cost of the buyout: This is the true cost of buying the equipment by paying the lease to the end of the term and then buying the equipment. It’s the total cost of the lease plus the residual value.
Smarter Finance USA offers both equipment leasing and loans for new and used heavy equipment. If you have a personal credit score of at least 600 and at least 5% to put down, you can secure financing of up to $250,000. Visit its website for more information.
Equipment Leasing Examples
For our two samples below, we show a chart comparing three lease types using the same equipment price, down payment, equipment life, and number of months. The first example uses the same interest rate, whereas the second has different rates corresponding to each type’s risk to the lessor. Each is compared side-by-side, showing estimated residual value, monthly lease payments, total cost of lease, and total buyout cost.
Note that typical interest rates for equipment leases are between 7% and 16%, with down payments for well-qualified borrowers starting at 5%. Lease terms are typically between two and five years and can go up to 90% of the estimated life of the equipment.
You will likely not get the same interest rate for all three types of leases. Fair market value leases would have the highest interest rate, followed by a 10% buyout, and then a $1 buyout.
Example 1: Same Interest Rates
- Price of equipment: $50,000
- Down payment: $10,000
- Life of equipment in years: 15
- Interest rate: 8%
- Number of months: 48
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, fair market value offers the lowest monthly payment and the lowest total cost of 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.
Example 2: Different Interest Rates
- Price of equipment: $50,000
- Down payment: $10,000
- Life of equipment in years: 15
- Interest rate: Varies (see below)
- Number of months: 48
Fair Market Value | 10% Buyout | $1 Buyout | |
|---|---|---|---|
Interest Rate | 10% | 9% | 8% |
Residual Value | $26,666.67 | $5,000.00 | $1 |
Monthly Lease Payments | $814.02 | $1,157.33 | $1,220.63 |
Total Cost of Lease | $39,072.76 | $55,551.69 | $58,590.16 |
Total Cost of Buyout | $65,739.43 | $60,551.69 | $58,591.16 |
In the example above, the $1 buyout is calculated with an 8% interest rate while a 10% buyout has a 9% rate and fair market value at a 10% rate. While it doesn’t change the order of which has the lowest payments or the cheapest buyout, it does show what different rates would do to those totals.
It’s important to shop for different equipment leasing providers when considering a lease to ensure you get the best rates and terms for your lease. Also, check out our guide to equipment financing to determine whether you should choose a loan or a lease.
Bottom Line
Equipment leases are a great way to obtain new or used heavy equipment at a cheaper monthly cost than an equipment loan. However, before deciding to lease equipment, make sure you calculate the costs involved to make sure it fits into your short- and long-term budgets. 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 get a small business loan and what type of lease fits your needs.
