How to Determine the Lease Payments and Total Costs of an Equipment Lease?


You’re comparing leasing financing quotations, but they’re hard to compare. Each quote is too variable. Calculating lease financing costs is the key to comparing choices. How much would borrowing money for your equipment cost? Charter Capital can help explain this seemingly confusing option.

Equipment lease calculation: 

Lease finance variables. Knowing this will help you estimate loan costs. 

Equipment leases include: 

  • Equipment cost, including shipment, installation, and training. 
  • Initial payments 
  • Tenancy 
  • Buyout 
  • APR 

These affect your monthly leasing payment. 

Cost of Equipment

Equipment leasing financing lets you include fees and charges. This spreads those expenditures throughout the lease term rather than paying them upfront. 

Naturally, your monthly leasing payments will increase with equipment cost. However, lease modifications can change this amount. Increase the lease duration or make a greater first payment to lower monthly payments. 

Start-Up Payment Structure 

Typically, a down payment (usually a larger first payment) is optional. Another benefit of equipment lease finance. No substantial initial payment is required (OAC). For certain organizations, a bigger upfront payment lowers monthly lease expenses. 

The first and last monthly (or security) payments are usually paid upfront. 

Term of the Lease

2–5-year equipment leases are normal. Longer terms lower monthly lease payments. Longer terms also increase funding costs. So your business’s priorities matter: 

  • Shorter terms offer the lowest financing costs. 
  • Longer terms offer the lowest monthly payments. 
  • Longer terms are easier to manage, while shorter terms are cheaper. Consider cash flow. 

Options for Buyout 

The lease ends—what happens? At lease signing, you’ll have numerous options, so it won’t be a surprise. These alternatives may be credit-dependent. Choices effect monthly payments. 

Most end-of-lease alternatives are: 

  • $10 buyout – At the end of the lease, you buy the equipment for $10. 
  • Residual buyout — You acquire the equipment at the conclusion of the lease for a percentage of the purchase price. Depending on equipment and financing approval, this residual is usually 10%. This residual reduces monthly payments, but you must be prepared for the lease buyout. 
  • Fair Market Value buyout – You buy the equipment for the lessor’s fair market value at the conclusion of the lease. This lowers monthly payments, but you must be ready to buy out at lease end. 
  • Stretch leases with early buyouts The first lease structure allows you to buy out your equipment early. Eliminating the last few monthly payments before the lease term saves money. Early buying reduces borrowing costs. 


Naturally, financing costs money. The lender or lessor pays for your equipment upfront, and you repay them with interest. Like renting money. Comparing leasing offers is tricky since “interest” can be computed in various ways. 

Quoted interest rates often misrepresent your financing cost. We recommend determining borrowing costs in real dollars. 

Calculate Real Financing Cost 

Calculating the equipment finance cost is the best way to assess your financing possibilities. You’ll spend more than the equipment’s cost for financing over the lease term. 

This computation considers the lease duration, initial payment structure, monthly payment amount, and end-of-term buy-out option. Financing costs can be calculated without sophisticated arithmetic. It’s easy!