Topics › Leasing – Effective Rate
Leasing – Effective Rate
Converts a leasing contract made up of down payment, installment, term and residual value into the comparable effective rate.
Type values, assign them with the value keys and press "Solve". It is the same financial calculator as under "Calculator" in the menu above.
Examples for this calculator
Each example is a story with explanation and a "what you learn" takeaway.
Formula
Internal rate from (asset value − down payment), lease installments and residual value
How the formula works
Leasing is financing in disguise: you finance (asset value − down payment), pay monthly installments and the residual value at the end. The calculator finds the rate at which all these payments add up (internal rate of return) – only this effective rate makes leasing comparable with a loan.
Cash-flow IRR: the liquidity advantage as a present value, the residual value as a final payment.
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