How it works

A useful distinction

Residual value shifts payment to the end

Hold asset value, rate and term constant, then increase the financing lease’s residual. Monthly payments fall because more remains due at the end; compare scheduled payments plus the residual, not installments alone.

Comparing lease structures consistently

Choose the lease mode that matches the agreement you are examining. Asset financing and a residual-value lease answer different questions about repayment and the asset's ending value. Keep the asset price, timing, and any residual assumption visible when comparing payments. A lower installment can reflect a larger amount left at the end rather than a lower overall financing cost.

Asset financing lease: formula and assumptions

Asset value=payment×annuity present-value factor + residual/(1+i)^n.

Payments occur at month end. The residual remains due at the end; taxes and contract-specific fees are excluded.

Lease payment: formula and assumptions

Monthly depreciation = (net cost−residual)/months; rent charge = (net cost+residual)×money factor.

A typical US auto lease structure is assumed. Jurisdictions may tax leases differently.

Worked example

Reference example currency: USD. These fixed examples do not change with your calculator preferences.

Using the Asset financing lease example:

Inputs

Find: Monthly payment
Asset value ($): 20000
End-of-lease residual ($): 8000
Lease term (months): 36
Nominal annual rate (%): 6

Method

Asset value=payment×annuity present-value factor + residual/(1+i)^n.

Result

Example result

Monthly lease payment: $405.06

Total periodic payments: $14,582.28

End residual: $8,000.00

Total financing charge: $2,582.28

These are illustrative inputs. Change the values to explore a different scenario.

Formula references

References explain the underlying methods; they do not imply endorsement or individual professional review of Finflo.

Common questions

What does the residual mean in an asset-financing lease?

The residual is an amount remaining at the end. The model discounts it alongside the monthly payments when valuing the lease.

When are financing-lease payments assumed to occur?

At month end. Taxes, contract fees and alternative payment timing are excluded from that model.

Prepared by Finflo. See our methodology and editorial policy. Read the relevant professional-advice limitations.

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