Lease Payout Plans
Automobile buyers find the math involved in leasing to be among the most tedious and complicated parts of the process.
Consider the finance charge associated with a lease. The majority of individuals fail to grasp the concept since it involves both the capitalized cost and the residual value, rather than just the capitalized cost. A fee on the capitalized cost of the vehicle seems like a no-brainer to most people, much like when you buy a car.
Yeah, that’s wrong! Leasing an automobile means you have the chance to buy it when a certain amount of time has passed, but for the time being, you’re only allowed to use it. At the conclusion of the lease term, the “loan balance” is represented by the residual value. The average capitalized cost outstanding over the lease term can be calculated by adding it to the capitalized cost and dividing by two.
Assume for a moment that you are leasing a vehicle with a $25,000 capitalized cost and a $15,000 residual value. No matter how long the lease is, you will always have an average balance of $20,000 (the two sums divided by two).
Since the money component is the yearly interest rate divided by 24, not 12, this amount is useful. Keeping with the same trajectory, let’s pretend the annual percentage rate (APR) is 6%:
The monthly finance charge is $75 (capitalized cost plus residual value) times the interest rate divided by 24 (30,000 x 6% / 24).
The monthly payments for your lease are determined by adding this finance fee to the depreciation charge.