I’m planning to do a lease and then buyout within the first month. As I understand it, I’ll have to make the first monthly payment and some of that payment goes towards depreciation (reducing my buyout cost) and some goes towards rent (“lost” money). Roughly this should be in proportion to the total depreciation and total rent, but I’m a numbers nerd I want to know exactly how this is divided over time. I’d expect that this is spelled out in the lease contract but I’m having a hard time finding an example contract to look at. Can anyone point me to one, or let me know if I’m misunderstanding how this works? (I’m specifically looking at Hyundai BTW.)
Put the deal into the leasehackr calculator and it will break the payment down for you.
If you search the site, there are at least 10 examples with numbers in the last 90 days
I see it broken down as a total (i.e., over the life of the lease). But I’m looking specifically for the breakdown over time because I want to know specifically for the first month’s payment how much is rent vs. depreciation.
Okay maybe I’m just overcomplicating this? I do understand how to calculate the lease payment, but I’m asking specifically how the accounting works. The links I’ve found either don’t specify or seem to assume that depreciation is amortized evenly over the entire life of the lease. Is that true? I thought I’d seen a contract once (which, sadly, I can’t find anymore) that indicated it wasn’t this simple. It was kind of deep in the fine print.
Create a lease amortization schedule such as the one shown here…
The lease amortization schedule is comparable to a loan amortization schedule. The first payment (excluding any tax levied on the payment) is deducted from the adjusted capitalized cost in its entirety because it is paid upfront. This should make sense.
It’s important to recognize that the lease payment used to amortize the lease is the base payment and, therefore, excludes any tax levied on the payment streams. The lease is amortized at the interest rate implicit in the lease which is the internal rate of return (IRR). Questions? Let me know.
Look at the paragraph describing the calculation of the adjusted lease balance in your lease contract. This describes how the lease balance of your lease is calculated over time (month by month). BTW, someone said the depreciation and rent charge on the 1st payment is the same as the 36th. This is not true.
Thank you! This is exactly what I was looking for. Unfortunately I don’t have a lease contract as I’ve just started shopping, so I was hoping someone could point me to an example contract that covers the depreciation schedule (even better if it’s a recent Hyundai contract).
I suggest that you request a copy of Hyundai’s lease contract from the dealer. They’ll simply mark it void and then you can look for the early termination clause that describes how the adjusted lease balance is calculated. It will reference the terms actuarial rate or constant yield rate used to amortize the lease.
To arrive at a close estimate of the interest rate, simply multiply the money factor by 2400. You can also find the actual monthly rate using the Excel function RATE(term, base payment, -adj. cap, residual,1). Now you can find the amount of each base payment that is allocated to depreciation (principle) and the amount allocated to the lease charge (interest).
The lease charge for any given period is the previous month’s lease balance x monthly interest rate and the corresponding depreciation amount is base payment – lease charge. If your state taxes the payment steams, the very first thing you need to do is subtract the tax from the lease payment to get the base payment. Keep in mind that the depreciation is book depreciation, not the actual depreciation of the vehicle. Again, see the amortization schedule in my post referenced above. Hope this helps.
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