# Why does the "rent charge" seem to be too high?

I recently leased a 2018 Nissan Leaf for 36 months. The money factor (mf) was 0.00178, adjusted capitol cost (acc) was \$25,599.91, and residual value (rv) is \$12,741.75. The sum of acc and rv is: \$38,341.66. This sum times the mf is: \$68.26. This sum times 360 is a rent charge (rc) of: \$2,457.32

Multiplying the mf by 2400 yields an effective interest rate (eir) of: 4.272%

Other than the mf and eir, these are the figures shown on my Lease Agreement.

It seems I am "borrowing" an amount equal to the acc minus the rv at an eir of 4.272% for 36 months. When I compute a loan payment for \$12,858.16 at 4.272% compound interest for 36 months, the monthly payment is: \$381.17 = \$357.17 (principal) + \$24.00 (interest). The (interest) * 36 = \$810

If I was borrowing \$14,350.50 at 4.272%, my (interest) * 36 = \$2457.32

Is my eir much higher than 4.272%? Is my rc too high? Is my acc too low (by \$1,492.44)? Am I missing something? Calculating the amount borrowed by adding the acc to the rv then multiplying this times the mf does not make sense to me.
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• edited November 2018
jhh966966 said:

I recently leased a 2018 Nissan Leaf for 36 months. The money factor (mf) was 0.00178, adjusted capitol cost (acc) was \$25,599.91, and residual value (rv) is \$12,741.75. The sum of acc and rv is: \$38,341.66. This sum times the mf is: \$68.26. This sum times 360 is a rent charge (rc) of: \$2,457.32

Multiplying the mf by 2400 yields an effective interest rate (eir) of: 4.272%

Other than the mf and eir, these are the figures shown on my Lease Agreement.

It seems I am "borrowing" an amount equal to the acc minus the rv at an eir of 4.272% for 36 months. When I compute a loan payment for \$12,858.16 at 4.272% compound interest for 36 months, the monthly payment is: \$381.17 = \$357.17 (principal) + \$24.00 (interest). The (interest) * 36 = \$810

If I was borrowing \$14,350.50 at 4.272%, my (interest) * 36 = \$2457.32

Is my eir much higher than 4.272%? Is my rc too high? Is my acc too low (by \$1,492.44)? Am I missing something? Calculating the amount borrowed by adding the acc to the rv then multiplying this times the mf does not make sense to me.

You are borrowing an average of the CAP cost and residual, over the life of the lease. (that's why you add them together).

The bank pays the adjusted CAP cost. The "loan" balance starts there and descends to the residual value at lease end. Unlike a loan, the finance charges are equal throughout the term, rather than higher at the beginning.

The depreciation is the amount of the car you use up, not what you borrow.

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• Your approach is not exactly the right one, but overall I agree, the rent charge is indeed sometimes over the top. This is why I won't lease a car anytime soon. I better save money and fully buy it, or just rent it and try various options. For example, two months ago I had a work trip to Ukraine and I rented a car from https://narscars.com.ua/en/odessa-r7 because I always like to do that when I go to another country. I ended up getting an Audi A6, and I really liked the car even though I like bigger cars. As for me, renting is a great opportunity to try multiple options and see what you like, and it's entertaining to try a new car every month or so.