How the Auto Lease Calculator Works
When you lease a car, you do not pay for the whole car. You pay for the part of its value that you use during the lease, plus a finance charge, plus tax. At the end you hand the car back. This is why a lease payment is usually lower than a loan payment on the same car. The Auto Lease Calculator works out that payment and shows what it is made of.
The words used in a lease
- MSRP: the list price of the car.
- Cap cost: the amount that is leased. It is the price you agree to pay, plus fees that you roll in, minus your down payment and trade-in.
- Residual value: what the car is expected to be worth at the end of the lease. It is set as a percentage of the MSRP. A higher residual means a lower payment.
- Money factor: the finance rate on a lease, written as a small number such as 0.0025. Multiply it by 2,400 to get the APR. So 0.0025 is 6%.
- Term: the length of the lease in months.
How the payment is worked out
cap cost = price + fees - down payment - trade-in residual = MSRP x residual % depreciation part = (cap cost - residual) / months finance part = (cap cost + residual) x money factor monthly payment = (depreciation part + finance part) x (1 + tax rate)
The depreciation part pays for the car losing value while you drive it. The finance part is the interest. It is charged on the average amount that is tied up, which is why the cap cost and the residual are added together, then multiplied by the money factor.
A worked example
A car has an MSRP of $35,000. You agree to pay $33,000, put $2,000 down, and roll in $695 of fees. The residual is 60%, the term is 36 months, the rate is 6% APR (a money factor of 0.0025), and the sales tax on the payment is 6%.
| Step | Amount |
|---|---|
| Cap cost ($33,000 + $695 - $2,000) | $31,695.00 |
| Residual ($35,000 x 60%) | $21,000.00 |
| Depreciation part (($31,695 - $21,000) / 36) | $297.08 |
| Finance part (($31,695 + $21,000) x 0.0025) | $131.74 |
| Sales tax (6% of $428.82) | $25.73 |
| Monthly payment | $454.55 |
| Due at signing (down payment + first payment) | $2,454.55 |
| Total of the 36 payments | $16,363.80 |
| Total cost of the lease (payments + down payment) | $18,363.80 |
Chart: what the payment is made of
Car losing value ██████████████████████████ $297.08 Finance charge ████████████ $131.74 Sales tax ██ $25.73
The calculator shows this as a single bar, with the car losing value in green, the finance charge in amber and the tax in grey. About two thirds of the payment is the car losing value.
What changes the payment
The residual value matters a lot. In the same example:
| Residual value | Monthly payment |
|---|---|
| 55% ($19,250) | $501.44 |
| 60% ($21,000) | $454.55 |
| 65% ($22,750) | $407.66 |
The down payment also lowers the payment, but by less than it costs you up front:
| Down payment | Monthly payment | Saving over 36 months |
|---|---|---|
| $0 | $518.74 | - |
| $2,000 | $454.55 | $2,311 |
| $4,000 | $390.36 | $4,622 |
Each $2,000 down lowers the payment by about $64, which saves $2,311 over 36 months. But if the car is stolen or written off early, the money you put down is usually lost. Many people choose a small down payment on a lease for this reason.
Miles
A lease allows a set number of miles a year, often 10,000 or 12,000. If you drive more, you pay a fee for each extra mile when you return the car, often $0.15 to $0.30. Enter the miles you expect to drive, and the calculator shows the charge. In the example, driving 15,000 miles a year instead of 12,000 for 3 years is 9,000 extra miles, which at $0.25 a mile is $2,250.
Tips
- Negotiate the price first. The price of the car lowers the cap cost, just as it does when you buy.
- Ask for the money factor. Dealers may not show it. Multiply by 2,400 to compare it with a loan rate.
- Compare leases by their total cost, not just the monthly payment. Add the money due at signing.
- Be honest about your miles. Buying extra miles up front is often cheaper than paying for them at the end.
- Think about what you want at the end. A lease is best if you like a new car every few years. If you keep cars for a long time, buying may cost less in the end.
What this calculator does not include
- Sales tax rules that differ by place. Some places tax the whole lease at signing, or tax only the down payment. The calculator taxes each monthly payment.
- Fees at the end, such as a disposition fee, and charges for damage beyond normal wear.
- Registration, insurance, and any deposit that the dealer asks for.
- The option to buy the car at the end, which costs the residual value plus fees.
This tool gives an estimate for general information only. It is not financial advice. Your lease contract sets the real payment and terms.