What is a lease rate factor?
In traditional financing, you hear about interest rates. Equipment leasing works a bit differently. Instead of an interest rate, most leases use a lease rate factor: a decimal multiplier that turns the cost of the equipment into your monthly payment.
Lease rate factor calculator
Enter the equipment cost, the lease rate factor you were quoted, and the term. The calculator shows the payment, the total you’ll pay, and the approximate interest rate the factor works out to.
Estimate only. It assumes no residual or buyout, no advance payments, and no taxes or fees. Your actual quote may differ.
Lease rate factor vs. interest rate
| Lease rate factor | Interest rate | |
|---|---|---|
| Structure | A simple multiplier that sets the monthly payment | Applied to the remaining balance. Each payment is part interest, part principal. |
| Transparency | Harder to compare directly with a loan | Easier to compare across lenders and loan products |
| Cost calculation | Needs the term to convert into an equivalent APR (use the calculator above) | The APR shows the cost over time |
| Payments | Fixed for the whole term | Fixed, or variable on a variable-rate loan |
| Balance | Non-declining: you owe the full contract | Amortizing: the balance drops with each payment |
What lease rate factor equals what rate?
Approximate lease rate factors by term and equivalent annual rate (no residual, payments in arrears). A lower factor means a cheaper lease for the same term.
| Equivalent rate | 24 months | 36 months | 48 months | 60 months |
|---|---|---|---|---|
| 6% | 0.0443 | 0.0304 | 0.0235 | 0.0193 |
| 8% | 0.0452 | 0.0313 | 0.0244 | 0.0203 |
| 10% | 0.0461 | 0.0323 | 0.0254 | 0.0212 |
| 12% | 0.0471 | 0.0332 | 0.0263 | 0.0222 |
| 15% | 0.0485 | 0.0347 | 0.0278 | 0.0238 |
| 18% | 0.0499 | 0.0362 | 0.0294 | 0.0254 |
Formula for the curious: lease rate factor = r ÷ (1 − (1 + r)−n), where r is the monthly rate and n is the number of months. A residual or buyout lowers the factor. Advance payments raise the effective rate.
$50,000 of equipment: lease vs. loan
Lease
| Cost of equipment | $50,000 |
| Lease rate factor | 0.03 |
| Term | 36 months |
| Monthly payment | $1,500 |
| Total payments | $54,000 |
| Equivalent rate | ~5.1% |
Loan
| Cost of equipment | $50,000 |
| Interest rate | 8% |
| Term | 36 months |
| Monthly payment | $1,567 |
| Total payments | $56,406 |
| Balance | Declines monthly |
In this simplified example the lease is cheaper, both per month and in total, because a 0.03 factor over 36 months works out to about 5.1%. But don’t compare the monthly payment alone. Look at the total you’ll pay, any buyout at the end (FMV, 10% or $1), advance payments, and what it costs to pay off early. Always check with your financial and tax advisors.
What affects your lease rate factor
Why paying off a lease early costs more than a loan
Business loan: amortizing
- Each payment covers interest plus principal, so the balance drops every month
- Pay it off early and you pay only the remaining principal, saving the future interest
Equipment lease: non-declining
- A non-cancellable contract with fixed payments. The obligation doesn’t shrink the way a loan balance does.
- Paying off early usually means paying the remaining payments in full, with no discount
Same cost, different payoff (example): $50,000 at an 8% equivalent rate over 36 months costs about $1,567 a month either way. Pay off after month 24 and the loan payoff is about $18,012 (the remaining principal), while the lease payoff is about $18,804 (all 12 remaining payments). That’s roughly $790 more to exit the lease early.
About “no prepayment penalty”: leases often say there’s no penalty, and that’s true in a narrow sense. You aren’t charged a penalty to pay early, but you’re still liable for the full term. The upside is predictability: fixed payments you can budget around.
Equipment financing, explained on air
Comprehensive guide to financing options
More detail: types of equipment leases · lease vs. EFA · Section 179
Three things to get started
- Online application: fill it out, upload documents and authorize us to process it. We start with a soft inquiry. A lender runs a hard inquiry only once you’re approved.
- Equipment invoice or quote: multiple vendors are fine, lumped into one monthly payment. A bill of sale works for some private sales.
- 3–4 months of bank statements: for income, any down payment and automatic ACH payments.
Application-only up to $250,000
- Less paperwork and fast processing
- Less stringent requirements to qualify
- No extra collateral, because the equipment is the collateral
- Often lower credit thresholds for you and your business
Give your customers a wider credit window
If you sell new or used equipment, trucks, trailers or machinery, including medical equipment, partner with us for high approval rates. Every applicant starts with a soft inquiry, so you can stop shopping your customers around.
Lease rate factor questions
How do you calculate a lease rate factor?
Divide the monthly payment by the equipment cost. For example, a $1,500 payment on $50,000 of equipment is a 0.03 lease rate factor. To go the other way, multiply the cost by the factor to get the payment.
How do I convert a lease rate factor to an interest rate?
You need the term too. A 0.03 factor over 36 months is about 5.1%, but the same 0.03 over 48 months is much higher. Use the calculator on this page, or the cheat-sheet table, to find the approximate equivalent rate.
What is a good lease rate factor?
It depends on the term. For 36 months, factors around 0.030–0.033 correspond to roughly 5–12% equivalent rates. Your factor depends on credit, time in business, equipment type, deal size and the end-of-term option.
Is a lease rate factor the same as a money factor?
No. A money factor (used in car leases) is a small number you multiply by 2,400 to get an approximate APR. An equipment lease rate factor is multiplied by the equipment cost to get the monthly payment.
Can I pay off an equipment lease early?
Yes, but leases are non-cancellable with a non-declining balance, so an early payoff usually means paying the remaining payments in full, with no discount. A loan payoff is usually just the remaining principal.
Does a lower monthly payment mean a cheaper lease?
Not always. Compare the total of payments, any buyout at the end, advance payments and fees. A longer term lowers the payment but usually raises the total cost.
Want a lease quote you can compare?
We’ll show you the lease rate factor, the equivalent rate and the total cost next to a loan option, so you can compare apples to apples. Call (888) 511-6223 for a free consultation.
Examples and the calculator are for illustration only and do not represent an offer. Actual lease rate factors depend on credit approval, term, equipment and structure. We don’t provide tax, accounting or legal advice. Liberty Capital Group, Inc. NMLS #2009539. CA DFPI #60-DBO49692.
Our small business financing experts are available to guide you through the funding Process.
Despite technological advancements, loans, especially in leasing equipment financing, predominantly involve personal interaction with an underwriter to ensure as fraud prevention. Automation may not suffice, particularly when dealing with a third party like the vendor and the complexities of equipment purchase. In such scenarios, business owners are often better served by collaborating with a Business Loans Broker like Liberty Capital Group, Inc., who can steer them in the right direction.
Instant Quote Online
Use our instant online quote calculator to get an accurate no obligation quote.
Apply Online
Complete our quick online application. Application takes 5 mins.
Review Your Options
We will contact you to review your options.
Get Funds
Money will be deposited in your account in as little as 24 hours.