HomeBusiness

Calculation of your rent payment and examples

Calculation of your rent payment and examples

Our equipment rental calculator allows you to estimate the cost of a potential equipment rental. You can calculate costs using the three most common

4 Types of Employee Benefits ( + Most Common Examples)
How To Create a Customer Profile (+ Free Template & Examples)
The Definition and Examples Overview » Small Business Bonfire

This post may contain affiliate links, which means that I may earn a commission if you click on the link & sign-up or make a purchase. You will NOT be charged extra for using the link, but it goes a long way in supporting this blog. I only recommend products or services that I have personally used or believe will add value to my readers.

Our equipment rental calculator allows you to estimate the cost of a potential equipment rental. You can calculate costs using the three most common rental types: fair market value, 10% buyout and $ 1 buyout. Our calculator will show you the residual value, estimated monthly rent payments, the total cost of the lease and the total cost of the purchase.

How the equipment rental calculator works

Our equipment rental computer will show you the estimated cost of renting equipment.

Inputs

  • Choose rental type: You will choose one of the three types:
  1. Fair market value: It allows you to rent equipment, with the option to buy the equipment at fair market value at the end of the lease or return it. This type will have the lowest monthly payments, but the highest interest rates because the landlord has a greater risk of having to find another tenant for the equipment.
  2. 10% buyout: This allows the lender to make payments and has the option to purchase the equipment for 10% of the initial value at the end of the lease. However, the lender will also have the option to walk away at the end of the lease, give up the 10% buyout price and return the rented equipment.
  3. $ 1 Byou out: Similar to an equipment loan, lenders make payments to rent the equipment and have the option to purchase the equipment for $ 1 at the end of the lease. Interest rates will typically be the lowest with this type of lease, and should be used when you are sure you want to own the equipment at the end of the lease.
  • Price of equipment: This is the price or value of the equipment at the time of the lease.
  • Installment: This is the amount of money you put down at the beginning of the lease.
  • Interest rate: The interest rate charged for the lease.
  • Equipment life in years: This is not the length of the lease and is rather the estimated life expectancy of the equipment at the beginning of the lease.
  • Number of months: This is the length of the lease. The equipment will be either purchased or returned at the end of this term.

Turn off

  • Residual value: This is the remaining cost of the buyout at the end of the lease. Otherwise known as the rest, you have to pay to buy the equipment at the end of the lease.
  • Monthly rent payments: This is the estimated monthly rent payment for the duration of the lease.
  • Total cost of rent: This is the estimated amount you will spend on payments throughout the lease. This is approximately the estimated monthly payment multiplied by the number of months of the lease, although rounding off in the lease payment formula may make these numbers slightly different.
  • Total cost of purchase: This is the real cost of buying the equipment by paying the lease until the end of the term and then buying the equipment. This is the total cost of the lease plus the residual value.

Smarter Finance USA offers both equipment rental and loans for new and used heavy equipment. If you have a personal credit score of at least 600 and at least 5% to put down, you can secure financing of up to $ 250,000. Visit his website for more information.

Equipment Rental Examples

For our two examples below, we show a graph comparing three lease types with the same equipment price, installment, equipment life, and number of months. The first example uses the same interest rate, while the second has different rates that correspond to each type’s risk to the landlord. Each is compared side by side, showing estimated residual value, monthly rental payments, total cost of lease and total buyout cost.

Note that typical interest rates for equipment rental are between 7% and 16%, with repayments for well-qualified borrowers starting at 5%. Rental periods are typically between two and five years and can extend up to 90% of the estimated life of the equipment.

You probably will not get the same interest rate for all three types of leases. Fair market value leases will have the highest interest rate, followed by a 10% buyout, and then a $ 1 buyout.

Example 1: Same interest rates

  • Price of equipment: $ 50,000
  • Installment: $ 10,000
  • Equipment life in years: 15
  • Interest rate: 8%
  • Number of months: 48

As you can see in this example, fair market value offers the lowest monthly payment and the lowest total cost of rent. However, if you decide to buy the equipment, it has the highest buyout cost. The highest monthly payments belong to the $ 1 buyout lease – but the total cost of purchase is the lowest.

Example 2: Different interest rates

  • Price of equipment: $ 50,000
  • Installment: $ 10,000
  • Equipment life in years: 15
  • Interest rate: Toggle (see below)
  • Number of months: 48

In the example above, the $ 1 buyout is calculated at an 8% interest rate while a 10% buyout has a 9% rate and fair market value at a 10% rate. While this does not change the order in which the lowest payments or the cheapest buyouts are, it does show what different rates will do to those totals.

Bottom Line

Equipment leases are a great way to acquire new or used heavy equipment at a cheaper monthly cost than an equipment loan. However, before deciding to rent equipment, make sure you calculate the cost involved to make sure it fits your short and long term budgets. Also, consider whether you plan to buy the equipment at the end of the loan period — or whether you will return it. These factors will help you decide if you should rent or get a small business loan and what type of lease suits your needs.

COMMENTS

WORDPRESS: 0
    error: Content is protected !!