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As with a loan, it's applied to the entire amount (archive)
[ Follow Ups ] [ 3-series (E46) Message Board ] [ Msg. Board FAQ ]
Posted by borrowed DG2 on February 04, 2001 at 23:28:17:

In Reply to: Money Factor Question posted by DCC on February 04, 2001 at 23:18:49:

It's applied to the selling price, minus any capital cost reduction (down payment) plus any fees that are part of the selling price (those, if any, not paid in cash up front).

In the first month of your lease, you pay "interest" on the entire selling price. In the last month, you pay "interest" on only the residual value, essentially. (However, some lease companies don't calculate it that way, because that would make it simple and easy to get out of a lease and calculate exactly what you owe. I know at least one company, Lexus Financial Services, at least used to do it that way - no penalty to buy out the lease).

In concept, a lease isn't much different than a loan, with the big difference being that with a loan you are paying it down to zero, but with a lease, you are paying it down to the residual value.

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