Effective Interest Rate on a lease

Factual Questions
1

For my business, our central office has negotiated a lease deal with a fleet company. Here’s their proposal:

2004 Ford Focus LX 4-Door

Price including options: 15,695.00
Lease rate (months 1-60): $298.69/month

Deprecation/month year 1: $204.79
Residual after year 1: $13,403.52
Year 2: $221.19
Residual after year 2: $10,749.24
Year 3: $238.89
Residual after year 3: $7,882.56
Year 4: $258.03
Residual after year 4: $4,786.20
Year 5: $278.69
Residual after year 5: $1,441.92

Final lease payment for month 61: $1,441.92

So it net’s zero. Obviously they’re backloading the deprecation, and though you can supposedly quit this lease anytime you want, the cost early on would be prohibitive. That’s because they would then sell the car and you’d owe the difference on what they can sell it for and what the current residual is. For example, if I sold after year 1, using the standard that the car depreciates about 30% in the first year, it might be sold for $11,000 and I’d owe the $2,402.52 difference.

Anyway, I’d likely keep the car(s) through the full five year run, barring any unforeseen circumstance. So the real question is what is the true effective rate on the lease? The first 60 months worth of payments are $17,921.40 and then the last big payment of $1,441.92 brings total payments (before taxes and sundry) to $19,363.32. I want to get an idea of the true cost of doing this so I can compare to some other purchase and finance options. Also, I might go with a different car, but this will give me a good idea of whether I’d want to do business with this fleet company (which is something that is new to me). I used to know how to do the math on this but it’s been a long time, so a little math refresher here (or link to an easy site on it) would also be helpful.

Anything else useful/helpful to take into consideration when leasing is appreciated.

2

I’m not familiar with leases, but the interest being charged is about 8% if held thru 61 months.

This is the site I used for calculations:

http://ray.met.fsu.edu/~bret/amortize.html

I first noticed the remainder looked like about five payments, so I used the site to see what the rate would be ($15,695 $298.69 for 65 payments). It was slightly over 8.

So I ran an amortization from there($15,695 $298.69 61 months 8%). The balance after 61 payments was within a few dollars of your figure. (A remainder of $1,441.92 in the 61st is the same thing as saying 61 payments of 298.69 plus additional $1,143.23 with the last payment.)

3

Thanks aahala, I was beginning to lose faith in Dopers to ever answer a question I’ve asked in GQ. This is helpful and I suppose that 8%, while not great, is not as horrible as I thought the rate might have been. Partly because I am used to 3-4 year loan periods on cars and not five years plus.