The Lease Interest Rate Calculator reveals the hidden interest rate in your auto or equipment lease. With a $450/month payment on a $35,000 asset with $20,000 residual over 36 months, the implicit APR is 1.45% (money factor 0.00061). Total finance charges are $1,200 — just $33.33/month or 7.4% of each payment. The remaining $416.67/month covers the $15,000 in depreciation.
The Lease Interest Rate Formula
The calculator determines the financing cost hidden within your lease payments by separating depreciation from interest.
Total Payments = Monthly Payment x Lease Term
Depreciation = Capitalized Cost - Residual Value
Finance Charge = Total Payments - Depreciation
Money Factor = Finance Charge / ((Capitalized Cost + Residual Value) x Lease Term)
Implicit APR = Money Factor x 2,400
Monthly Depreciation = Depreciation / Lease Term
Monthly Finance Charge = Finance Charge / Lease Term
The money factor is the lease industry's equivalent of an interest rate. Multiplying by 2,400 converts it to a standard APR for direct comparison with auto loan rates.
Worked Example: Finding the Hidden APR in an Auto Lease
A consumer wants to know the true interest rate on their auto lease.
Inputs:
- Monthly Lease Payment: $450
- Capitalized Cost: $35,000
- Residual Value: $20,000
- Lease Term: 36 months
Step-by-step:
- Total Payments: $450 x 36 = $16,200
- Depreciation: $35,000 - $20,000 = $15,000
- Finance Charge: $16,200 - $15,000 = $1,200
- Money Factor: $1,200 / (($35,000 + $20,000) x 36) = $1,200 / $1,980,000 = 0.00061
- Implicit APR: 0.00061 x 2,400 = 1.45%
- Monthly Depreciation: $15,000 / 36 = $416.67
- Monthly Finance Charge: $1,200 / 36 = $33.33 (7.4% of payment)
At 1.45% APR, this lease is well below typical auto loan rates (6-8%). Only $33.33 of each $450 payment goes to interest — the rest covers depreciation.
Interpreting Money Factors and APRs
The money factor is the key metric for evaluating lease financing. Here's how to interpret it:
- Below 0.00100 (< 2.4% APR): Excellent — promotional or manufacturer-subsidized rate. The example's 0.00061 falls here.
- 0.00100 - 0.00200 (2.4% - 4.8% APR): Good — competitive financing, comparable to strong credit auto loans.
- 0.00200 - 0.00300 (4.8% - 7.2% APR): Moderate — in line with average auto loan rates. Worth negotiating down.
- Above 0.00300 (> 7.2% APR): High — you're paying a significant financing premium. Consider buying with a loan instead.
Always compare the implicit APR against current auto loan rates for your credit tier. If the lease APR significantly exceeds what you'd pay on a loan, the convenience of leasing comes at a measurable cost.