If there’s no interest… then how are my monthly payments decided? Well, monthly lease payments consist of two factors: Monthly rental fees and monthly depreciation. There is no principal or associated interest in the monthly payments, because principal and interest is only associated with credit cards and loans. The monthly lease payment is calculated by adding two numbers together. The first component of the monthly payment is the “rent” that the leasing company charges the customer in exchange for the customer’s right to possess and use the product. This rent charge accounts for the leasing company’s risk in the same fashion an interest rate in a loan accounts for the lender’s risk, but with additional costs because the leasing company owns the product.
The second component of the monthly payment is the product’s monthly depreciation. Each month the customer possesses and uses the product, the product’s fair market value decreases. That decrease is part of the monthly payment so that the customer is compensating the business for the decrease in the product’s fair market value while the customer is using the product. These two numbers, added together, make up the monthly payment calculation.