On May 3, 8:08 pm, camg...@[EMAIL PROTECTED]
wrote:
> On May 3, 11:39 am, Joe <JoSc...@[EMAIL PROTECTED]
> wrote:
>
> > I've been offered a chance to invest in fundingequipmentleases.
>
> > While researching the field, I haven't found anyone that can (or will)
explain
> > how to convert lease rates or money factors to interest rates.
>
> Money Factor = Interest Rate /24
>
> P = Principle
> R = Annual Interest Rate
> N = Number of Monthly Payments
> L = Residual (R is already taken)
> M = Monthly Payment
> MF = Money Factor
>
> M = (P - L)/N + (P + L)*R/24
> M = (P - L)/N + (P + L)*MF
>
> Oooh, that was mysterious.
>
> HappyLeasing!
>
> --------------------------------------
Those equations above seem mysterious to me, and the answer is not
that straight forward. The Lease Rate Factor, (or Money Factor as you
call it) is the month lease payment divided by the equipment cost.
Lessors say they like to use it instead of interest rate because it is
easy for the Lessee to determine the new monthly payment if the
equipment cost changes from its original quoted value. For example,
the
montly payment = Lease Rate Factor * Equipment Cost
Sometimes Lessors quote the Lease Rate Factor to disguise the real APR
or annual percentage rate. It can be quite high as compared to a loan
with a bank.
To convert the Lease Rate Factor to interest rate, you need to use a
program like T-Value or International Decision Systems (Info
Analysis), to back out the interest rate given the lease payment,
equipment cost and assumed residual value. First, calculate the
Monthly payment using the calculation above. Then, solve for the
interest rate by plugging in the three variables: Lease payment,
equipment cost, and residual value.
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