# Lease Calculator

## What is a Lease?

A lease is a contract, where one party agrees to rent a property that is owned by another party. The tenant or the lessee enjoys the guaranteed use of an asset and makes regular payments to the lessor or the landlord. The lessor and the lessee must honour the contract. The contract states the duties and obligations of both parties to maintain the agreement. For example, the property lease of a residential property states the responsibilities of the landlord and the tenant. The tenant pays rent and deposits security with the landlord. There are consequences on breach of the contract where the landlord may ask the tenant to vacate the property. You have a capital lease that is a legal agreement, where the lessor may agree to transfer the asset to the lessee, at the end of the lessee period. The capital lease is a long-term agreement that cannot be cancelled. The lessor transfers the right of ownership of the asset to the lessee, at the end of the term of the lease. However, the lease agreement gives the lessee the right to purchase the asset at a discounted price, which is lower as compared to the fair market value of the asset.

## What is a Lease Calculator?

The lease calculator is a simulation that shows monthly lease payments, total monthly payments, and the total interest amount. The residual value or the salvage value, is an estimate of the worth of the asset at the end of the lease term. The lease calculator consists of a formula box, where you enter the asset value, residual value, and the lease term. You may calculate the effective cost of the lease and the interest cost of the lease.

## How does Lease Calculators work?

The lease calculator shows you the monthly lease payments and the total interest amount in seconds. You may use the mathematical formula to calculate the monthly lease payments. PMT = PV – FV / [(1+i)^n / (1 – (1 / (1+i)^n / i)] For example, the cost of the leased asset is Rs 2,00,000. The residual value is Rs 50,000. The rate of interest is 8%. The asset is leased for one year or 12 months. PV = Rs 2,00,000 FV= Rs 50,000 i = 8/100/12 = 0.006667 n = 1 year = 12 months PMT = 2,00,000 – 50,000 / (1+0.006667)^12 / (1 – 1/ (1+0.006667)^12 / 0.006667) PMT = Rs 13,381.6 Total of 12 monthly payments = 12 * 13381.6 = Rs 1,60,579. If you take the total interest for 12 months you get Rs 10,579.17.

## How to use the ClearTax Lease Calculators?

The lease calculator shows you the monthly lease payments and total interest in seconds. To use the ClearTax Lease Calculator:
• You must enter the value of the asset.
• Enter the residual value of the asset.
• You then enter the lease term in years.
• The ClearTax Lease Calculator will show you monthly lease payments, total interest, and the total payments.

## Benefits of ClearTax Lease Calculator

• The ClearTax Lease Calculator shows you the effective interest rate and the monthly payments.
• You get to understand the benefits of a car and a house lease.
• You can easily make the buy vs lease decisions and save your money.
• It helps you make effective business decisions as you may compare lease vs purchase of equipment.

## FAQs on the ClearTax Lease Calculator

• Is the ClearTax Lease Calculator easy to use?
The ClearTax Lease Calculator is an easy-to-use handy tool. It calculates the monthly lease payment in seconds. It also calculates the total interest you pay on the lease. It may be used from the comfort of your home or anywhere.
• Why does ClearTax Lease Calculator ask for the residual value of the asset?
The residual value or the salvage value, is the estimated value of any fixed asset at the end of the lease term. The lessor uses the residual value, to determine the periodic lease payments the lessee must make on the asset. The ClearTax Lease Calculator uses the residual value of the asset, to calculate both the monthly lease payments and the total interest amount, incurred by the lessee on the asset.
• Why does the ClearTax Lease Calculator show lower lease payments as compared to loan payments?
Leasing has lower monthly payments as compared to loan payments. Even though you pay interest on the entire loan amount, you only add the difference between the loan and the salvage value. The ClearTax Lease Calculator uses this concept to calculate the lease payments on the asset.
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