If you are considering leasing v buying your business equipment, the next step is usually to look at your available leasing options in some detail. At this stage, it is very helpful to know how to calculate the APR (Annual Percentage Rate) on a leasing deal.
How Much Interest Am I paying On My Leasing Deal?
In order to calculate the APR on a leasing agreement, you need to know:
- The capital value of the equipment
- The Term over which you wish to lease and lease profile
- The lease rental payment
Sample Lease Cost Calculation
Let’s look at a typical equipment leasing example:
- The equipment you wish to acquire is a computer system with a Capital Cost of £10,000.00
- The lease rental agreement is based on 36 monthly repayments with one month payable on delivery
- The quoted lease rental payment is £320.00 per month
In this example, the total rental repayments come to £11,520.00, comprising of the Capital Cost of £10,000 plus total interest of £1,520.
Working out the Leasing Deal APR
The next step is to work out what the flat rate interest is on your deal. To do this you simply divide the total interest payable by the number of years. In our example:
- Interest of £1,520.00 over three years equals £506.70 per year.
- Divide this annual figure of £506.70 by the Capital Cost of your equipment; in this case £10,000. This gives you a flat interest rate of just over 5%.
- The APR is roughly twice the flat rate, hence the APR in our example is 10%
As a first step, why not try the WestWon lease calculator to work out a sample lease rental cost for your required business equipment, or call WestWon asset finance experts on Tel:01494 611 456 for more information.