Lease Calculator
Use this calculator to find the monthly payment or effective interest rate of a lease. For auto leases in the U.S., please see our specialized Auto Lease Calculator.
What Is a Lease?
A lease is a legally binding agreement between a lessor (the owner) and a lessee (the user) allowing the lessee to use an asset for a set period in exchange for regular payments. Leasing spans far beyond homes—it includes cars, office space, machinery, server hardware, software, aircraft, and more.
Core elements of a lease:
Asset use permission
Fixed term and conditions
Monthly payments (rent)
End-of-term options (renewal, buyout, return)
Rent vs. Lease: What’s the Difference?
Although commonly interchanged, rent refers to the payment made, while lease refers to the legal agreement.
| Aspect | Rent | Lease |
|---|---|---|
| Legal Term | Payment arrangement | Contractual obligation |
| Duration | Often short-term (month-to-month) | Typically fixed-term (e.g., 12, 24 months) |
| Equity Gained | None | None |
| Stability | Less stable | Legally binding, fixed |
Understanding Residual Value
Residual value, or salvage value, is what an asset is worth at the end of the lease. It’s most commonly seen in car leasing, but applies to all depreciating leased items.
Example:
A car leased for 3 years might have a residual value of $16,000 if it was worth $30,000 new. You can choose to buy the car at this price.
Types of Leases by Asset
Residential Leases
The most common lease category.
Typical terms: 12, 18, 24 months
Key elements: rent amount, deposit, late fees, renewal options
Lease-to-own: Option to purchase the property after lease ends
Commercial Real Estate Leases
Used by businesses for office, industrial, or retail space. More complex than residential leases.
Net Leases
| Type | Tenant Pays For |
|---|---|
| N | Rent + property tax |
| NN | Rent + tax + insurance |
| NNN | Rent + tax + insurance + CAM (common area) |
Modified Gross/Net Leases
Split expenses between tenant and landlord—customizable and negotiable.
Equipment and Asset Leases
Includes machinery, lighting, furnishings, computers
Enables small businesses to access tools without large upfront costs
Often come with service contracts and buyout options
Auto Leasing
Leasing a car involves paying for depreciation and interest over a fixed term.
Key Concepts:
Capitalized Cost: Sticker price negotiated
Residual Value: Car’s value at lease-end
Money Factor: Interest rate divided by 2,400
Example:
A car lease with a capitalized cost of $28,000, a residual value of $16,000 over 36 months:
You’re paying $12,000 over 3 years + interest
Monthly payment = Depreciation + Finance Fee
Business Leasing and Its Advantages
Leasing isn’t just for individuals—it’s a strategic move for many businesses. Global corporations lease billions of dollars in equipment, vehicles, and facilities.
Why Businesses Lease:
Preserve Capital: Avoid tying up cash in asset purchases.
Flexibility: Easy to upgrade or replace equipment as needed.
Tax Benefits: Lease payments on operating leases may be tax-deductible.
Balance Sheet Management: Some leases do not show up as liabilities (especially operating leases under older accounting rules).
Leasing is especially advantageous for startups and small businesses that need expensive tools but lack upfront funds.
Capital Lease vs. Operating Lease (U.S.)
The Financial Accounting Standards Board (FASB) distinguishes leases into two types for business accounting:
Capital Lease (also called Finance Lease)
Asset recorded on the balance sheet
Depreciated over time
Lessee assumes risks and benefits of ownership
Criteria to qualify as a capital lease:
Ownership transfer at end of lease
Bargain purchase option
Lease term is ≥75% of asset’s useful life
Present value of lease payments ≥90% of asset value
Operating Lease
Considered an expense in income statements
Not capitalized (for older standards)
Lessee doesn’t own the asset
Common for assets prone to obsolescence
Renting vs. Leasing Cars
| Aspect | Car Rental | Car Lease |
|---|---|---|
| Duration | Days to weeks | Months to years |
| Provider | Car rental agencies | Dealerships or finance companies |
| Cost per Month | High (short-term use) | Lower (long-term use) |
| Ownership Option | None | Usually has buyout option |
Use Case:
Rent when on vacation or temporarily without a car.
Lease when seeking new vehicles every 2–3 years.
Lease Contract Structure and Key Clauses
A lease contract includes:
Asset description: What’s being leased
Term: Duration (start and end dates)
Rent/Payment: Monthly/quarterly amounts
Security Deposit: Refundable under certain conditions
Maintenance Responsibilities
Renewal Terms
Purchase Option (if applicable)
Early Termination Conditions
Risks and Pitfalls of Leasing
Overpaying: Leases can cost more over time than purchasing
End-of-Term Charges: Wear-and-tear fees, mileage penalties
Unclear Terms: Ambiguous language around maintenance, liability
Early Termination Fees: Can be thousands of dollars
Inflated Residuals: Especially in car leases, may be higher than actual market value
How to Read and Negotiate a Lease
Always read the entire contract—including fine print.
Clarify all fees—initial, ongoing, and exit fees.
Negotiate the terms—especially in commercial or equipment leases.
Ask about insurance—who is responsible?
Consult a lawyer for high-value or complex leases.
Red Flags:
Non-refundable deposits
Automatic renewal clauses
One-sided maintenance obligations
FAQs About Lease Agreements
1. Can I terminate a lease early?
Yes, but often with penalties. Some agreements allow lease break with notice and a fee.
2. Is leasing better than buying?
It depends. Leasing offers flexibility, while buying builds equity. For frequently updated assets, leasing may be smarter.
3. What is the “money factor” in car leasing?
It’s a way of expressing interest. Multiply the money factor by 2,400 to convert to APR.
4. Who pays for repairs in a lease?
Typically, the lessee covers basic maintenance unless stated otherwise.
5. Are lease payments tax deductible?
Yes—for businesses using leased assets for operations. Residential leases generally don’t qualify.
6. Can I negotiate lease terms?
Yes—especially in commercial and equipment leases. You can often adjust maintenance responsibilities, term lengths, and even rental amounts.
Conclusion and Next Steps
Lease agreements offer a versatile, flexible, and accessible way to use assets without buying them outright. From cars and real estate to software and industrial machines, leasing can be a powerful tool for both individuals and businesses—if done wisely.
✅ Before You Sign a Lease, Remember to:
Know the total cost, not just the monthly payment
Understand responsibilities and restrictions
Read the full contract and ask questions
Consider whether ownership or flexibility is your goal