How equipment lease payments are actually quoted
Banks talk APR. Most equipment lessors still talk factor rate. The street formula is:
$100,000 × 0.025 = $2,500 per month. That factor is not an interest rate. A 0.025 factor on 36 months is a very different APR than 0.025 on 60 months. If a vendor says “2.5%,” ask whether they mean a factor of 0.025 or 2.5% APR. They are not the same thing. Definitions live in the glossary.
Residual is the other lever. Higher residual = lower payment on an FMV. $1 buyout has almost no residual, so the payment has to retire nearly the whole ticket.
2026 factor-rate bands by credit
These are directional ranges for U.S. commercial equipment, not a quote. Ticket size, time in business, and whether the asset has a real secondary market move you inside the band.
| Credit / story | 36-month factor | 48-month factor | 60-month factor |
|---|---|---|---|
| 720+ FICO, 3+ years, bankable iron | 0.018–0.022 | 0.020–0.025 | 0.022–0.027 |
| 660–719, decent cash flow | 0.023–0.027 | 0.025–0.030 | 0.027–0.032 |
| 600–659 or thin time-in-business | 0.028–0.034 | 0.030–0.036 | Often declined / short term |
| Sub-600 or startup, strong down payment | 0.034–0.042 | 0.036–0.045 | Rare |
A “good” rate is the low end of your row on clean, titled equipment. Vendor promotional rates are often a different product than a conventional factor.
FMV vs $1 buyout on the same $100,000 asset
This is the comparison Google is actually asking for when people search FMV lease calculator vs $1 buyout.
| Structure | Residual | Illustrative factor | Monthly | 48-mo cash out | End game |
|---|---|---|---|---|---|
| FMV / true lease | 20% ($20,000) | 0.022 | $2,200 | $105,600 | Return, renew, or buy at FMV |
| $1 / finance lease | $1 | 0.026 | $2,600 | $124,800 | You own it |
| TRAC / 10% purchase option | 10% ($10,000) | 0.024 | $2,400 | $115,200 + $10k option | Common on titled vehicles / some heavy |
FMV looks cheaper every month. It is not cheaper if you will keep the asset. $1 buyout looks expensive monthly and is usually cheaper if you keep it five-plus years and can use Section 179 on a loan instead. Run both in the lease calculator (set residual to 20% vs $1) and the lease vs buy calculator.
Typical residuals by term
| Term | Common FMV residual | When it is realistic |
|---|---|---|
| 24 months | 30–40% | Tech, medical imaging, forklifts with hours caps |
| 36 months | 20–30% | Default FMV construction and manufacturing |
| 48 months | 15–25% | Still-liquid used markets (skid steers, CNC nameplates) |
| 60 months | 10–20% | Only if the iron still trades; skip on specialty one-offs |
Down payment on leases is often $0–10% for qualified credits. First-and-last, documentation fees, and advance payments are still cash out the door—put them in the model.
Industry spreads: medical, construction, restaurant, farm
- Medical / imaging: Vendor FMV programs can look cheap (0.018–0.026) because residuals on ultrasound and similar are real. Service contracts and software locks matter. See the medical equipment lease calculator.
- Construction / heavy: Hours, attachments, and used comps drive residual. Skid steers and backhoes lease easily; specialty attachments do not. Hours and usage limits affect residual.
- Restaurant: Smaller tickets, faster obsolescence, higher factors (often 0.026–0.035). Bundling a package into one schedule is normal.
- Farm / ag: Seasonal skip-pay and manufacturer subsidy rates sit next to conventional factors. Do not mix a 0% for 12 months teaser with a 48-month conventional factor and call it one rate. Use the farm equipment loan calculator when the quote is really a loan.
How to structure a lease vs purchase comparison
Hold term, down payment, and residual constant. Convert the lease factor into total cash out, including buyout. Convert the loan into total cash out including interest. Then ask one question: will you still want this asset when the residual is due? If yes, loan or $1 buyout. If no, FMV. Full framework: equipment lease vs buy analysis.