Lease Financing

For auto-consumers, crunching the numbers is one of the most difficult and
confusing aspects of leasing.
Take the finance charge on a lease for instance. Most people just dont 
understand how this is calculated on capitalised cost AND residual value 
instead of just the capitalised cost. For most, it seems plainly obvious, 
just as is the case when purchasing, that a charge should be levied on the 
capitalised cost of the vehicle.
 
Well, no quite! When you lease a car, youre only using the car over a 
specified period of time with the option of buying the car. The residual 
value represents the loan balance at the end of the lease. If you add it
 to the capitalized cost and divide by two, youll get the average 
capitalized cost outstanding over the lease term. Let us suppose youre 
leasing a car with a capitalized cost of $25,000 and a residual value of 
$15,000. You average balance over the lease term, irrespective of how long 
it is, is $20,000  the sum of the two divided by two -. 
Using this sum works because the money factor is the annual interest rate 
devided by 24, rather than 12. Continuing with our example and assuming an 
interest rate of 6% APR: 
$30,000 X (6 per cent / 24) = $75
(Capitalized cost + residual value) X (interest rate / 24) = Monthly 
finance charge
This finance charge is added to the depreciation charge to calculate the 
monthly payments on your lease. 

(Word count: 248)

PPPPPP


 
