Lease Financing

For auto-consumers, crunching the numbers is one of the most hard and
confusing aspects of leasing.Take the finance charge on a sublease for instance. Most people just don't appreciate how this is fitted on capitalised price and residual value instead of just the capitalised cost. For most, it seems plainly obvious, fair-minded as is the state when purchasing, that a charge should be levied on the
capitalised price of the vehicle.

Well, not quite! When you lease a car, you're just using the car above a
specified period of time by the option of buying the car. The residual
value represents the loan balance at the end of the sublease. If you add it
to the capitalized payment and divide by two, you'll get the usual
capitalized payment outstanding over the sublease term. Let us suppose you're
leasing a car with a capitalized payment of $25,000 and a residual value of
$15,000. You average balance on top of the lease term, despite of how long
it is, is $20,000 the sum of the two divided by two -.

Using this sum works because the money aspect is the annual regard rate
devided by 24, rather than 12. Continuing by 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 burden to estimate the
monthly payments on your lease.