Understanding Equipment Lease Rate Factors
In the world of commercial equipment leasing, costs are rarely presented as simple interest rates (APR). Instead, lessors use a metric known as the Lease Rate Factor (LRF). This calculator helps businesses decode that factor to understand exactly what their monthly obligation will be and the total cost of financing.
What is a Lease Rate Factor?
A Lease Rate Factor is a decimal multiplier that determines your monthly payment based on the total cost of the equipment. Unlike an interest rate, which applies to the remaining principal balance, the lease factor is applied to the total original equipment cost to determine a fixed monthly payment.
The formula used by this calculator is:
Monthly Payment = Total Equipment Cost × Lease Rate Factor
How to Use This Calculator
- Total Equipment Cost: Enter the full invoice amount of the equipment you intend to lease.
- Lease Rate Factor: Enter the factor provided on your lease quote. This is typically a number between 0.020 and 0.050. For example, a factor of 0.0325 represents 3.25 cents per dollar financed.
- Lease Term: Enter the duration of the lease in months (typically 24, 36, 48, or 60 months). This is necessary to calculate the total cost of ownership.
Typical Lease Rate Factors
Lease rate factors vary based on creditworthiness (credit tier), the type of equipment, the term length, and the buyout structure ($1 Buyout vs. FMV). Common ranges include:
- 24 Months: 0.0450 – 0.0550
- 36 Months: 0.0310 – 0.0350
- 48 Months: 0.0240 – 0.0280
- 60 Months: 0.0190 – 0.0230
Note: A lower factor results in a lower monthly payment. "Soft" costs like software or installation may carry a higher factor than "hard" assets like machinery.
Why Not Use APR?
Equipment leasing is distinct from a bank loan. In a Fair Market Value (FMV) lease, you are paying for the usage of the equipment rather than the equipment itself, often with an option to return it at the end. Because the lessor retains the residual value, calculating a traditional APR is complex and often inaccurate. The Lease Rate Factor simplifies the math for the lessee: if you know the equipment cost and the factor, you know your payment instantly.
function calculateLeaseDetails() {
// 1. Get Input Values
var costInput = document.getElementById('elrf_cost').value;
var factorInput = document.getElementById('elrf_factor').value;
var termInput = document.getElementById('elrf_term').value;
// 2. Validate Inputs
if (costInput === "" || factorInput === "" || termInput === "") {
alert("Please fill in all fields (Cost, Factor, and Term) to calculate.");
return;
}
var cost = parseFloat(costInput);
var factor = parseFloat(factorInput);
var term = parseFloat(termInput);
if (isNaN(cost) || cost <= 0) {
alert("Please enter a valid Equipment Cost.");
return;
}
if (isNaN(factor) || factor <= 0) {
alert("Please enter a valid Lease Rate Factor.");
return;
}
// Basic check: Factors are usually 1.
if (factor > 1) {
alert("The Lease Rate Factor should be a decimal (e.g., 0.035). If your factor is a percentage, please divide by 100.");
return;
}
if (isNaN(term) || term <= 0) {
alert("Please enter a valid Lease Term in months.");
return;
}
// 3. Perform Calculations
// Formula: Monthly Payment = Cost * Factor
var monthlyPayment = cost * factor;
// Formula: Total Cost = Monthly Payment * Term
var totalCost = monthlyPayment * term;
// Formula: Finance Charges = Total Cost – Original Equipment Cost
var financeCharges = totalCost – cost;
// Formula: "Effective Cost" – simple logic to show cost per dollar financed
var costPerDollar = totalCost / cost;
// 4. Update UI
document.getElementById('res_monthly').innerText = "$" + monthlyPayment.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('res_total').innerText = "$" + totalCost.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
// Handle cases where finance charges might be negative (rare/impossible in standard leasing but mathematically possible if factor is tiny)
if (financeCharges < 0) {
document.getElementById('res_finance').innerText = "$0.00";
} else {
document.getElementById('res_finance').innerText = "$" + financeCharges.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
}
document.getElementById('res_difference').innerText = "$" + costPerDollar.toFixed(2) + " paid per $1 borrowed";
// Show results container
document.getElementById('elrf_results_container').style.display = 'block';
}