Lease With Option To Own Calculator

Lease With Option To Own Formula:

\[ Dep = (CC - RV) / T \] \[ Fin = (CC + RV) \times MF \] \[ MP = Dep + Fin \]

Capitalized Cost (CC):

Residual Value (RV):

Term (T):

months

Money Factor (MF):

decimal

Depreciation (Dep):

Finance Fee (Fin):

Monthly Payment (MP):

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1. What is Lease With Option To Own?

A lease with option to own (also called a rent-to-own agreement) is a contract where a lessee pays to lease an asset with the option to purchase it at the end of the lease term. The monthly payment typically consists of a depreciation component and a finance fee.

2. How Does the Calculator Work?

The calculator uses the lease payment formula:

\[ Dep = (CC - RV) / T \] \[ Fin = (CC + RV) \times MF \] \[ MP = Dep + Fin \]

Where:

$ Dep $ — Depreciation ($/month)
$ Fin $ — Finance fee ($/month)
$ MP $ — Monthly payment ($)
$ CC $ — Capitalized cost ($)
$ RV $ — Residual value ($)
$ T $ — Term (months)
$ MF $ — Money factor (decimal)

Explanation: The depreciation represents the value loss of the asset over the lease term, while the finance fee is essentially the interest charge.

3. Importance of Lease Calculation

Details: Understanding the components of your lease payment helps you evaluate whether a lease-to-own agreement makes financial sense compared to outright purchase or traditional financing.

4. Using the Calculator

Tips: Enter the total cost of the item (capitalized cost), the estimated residual value at lease end, the lease term in months, and the money factor (which is similar to an interest rate).

5. Frequently Asked Questions (FAQ)

Q1: What is a money factor?
A: The money factor is essentially the interest rate on your lease expressed as a decimal. To convert to approximate APR, multiply by 2400.

Q2: How is residual value determined?
A: The residual value is typically set by the lessor and represents the expected value of the asset at lease end if you choose not to purchase it.

Q3: What happens at the end of the lease term?
A: You typically have the option to purchase the item for the residual value, return it, or sometimes continue leasing.

Q4: Are there advantages to lease-to-own?
A: It can provide access to assets with lower upfront costs and may include maintenance, but total costs are often higher than traditional financing.

Q5: How does this differ from regular leasing?
A: Unlike regular leasing, lease-to-own agreements give you the right (but not obligation) to purchase the asset at lease end.