Cost of leasing a Car: TVM Calculation Examples

Q. You are considering leasing a car. You notice an ad that says you can lease the car you want for $477.00 per month. The lease term is 60 months with the first payment due at inception of the lease. You must also make an additional down payment of $2,370. The ad also says that the residual value of the vehicle is $20,430. After much research, you have concluded that you could buy the car for a total "driveout" price of $33,800. What is the quoted annual interest rate you will pay with the lease?

Open the Present Value of Annuity screen. Select solve for Interest Rate.

Present Value: 33800 - 2370 (down payment) = 31430

Payment Amount: 477
Payment Frequency: Monthly
Number of payments: 60
Compounding Interval: Monthly
End Balance: 20430 (Residual value after 5 years/ 60 months)
Payment mode: Beginning

Ans: 13.47% per annum