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Monthly Payment Formula in Auto Leasing Industry and Its Analytical Properties

Guoping Zeng

Abstract



A simple mathematical formula is used to calculate monthly payment in Auto Leasing industry. However, the literature about this formula is limited. Analytical properties are ignored. Moreover, the origin of this formula has not been explored. In this paper, we systematically study this monthly payment formula and its monotonic properties. We explore the origin of this simple formula by deriving the exact formula for monthly payment. We obtain an alternate, more complicated but more accurate monthly payment formula. We show that the monthly payment by the simple formula is generally smaller than and closed to that by the exact formula.

Keywords


Monthly payment, auto leasing, loan amount, interest rate, money factor, residual

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