The Lease Rate Factor Is Not The Interest Rate

Often if you get a lease quote, whether you are a vendor or an enduser, a leasing company will provide you with a "Lease Rate Factor". A lease rate factor is the lease payment as a percent of the total cost of the leased equipment or software. Stated another way, if you multiply the lease rate factor by the cost of the leased equipment or software, the result equals the periodic lease payment.

Although most of the leasing industry uses the lease rate factor term, we at LPI think the term is antiquated, non-communicative and ought to be retired. LPI uses "Lease Payment Percentage", which is a lot closer to what the term really means.

People sometimes mistake the lease rate factor for the interest rate equivalent of the lease payment. It is not. As an example, if the lease rate factor for 36 months was 3.3% and the cost of a piece of equipment or software was $100,000, the monthly lease payment would equal $3,300 per month. 3.3% is not the lease rate; the lease rate is 12.25%.

P.S. Many in the leasing industry quote the lease rate factor in the form .0XXX, such as .033, when they mean 3.3%. We think that's medieval and most sales reps and users talk and think in 3.3% terms and not .033! We also think they know how to apply 3.3% in their calculations. So we use 3.3% as our form of "lease payment percentage". Leasing industry - Wake Up or Enlighten Us!

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© LPI Software Funding Group, Inc.  

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                         February 27, 2006