How to use the car lease calculator
- Enter the MSRP, the negotiated price, any cap cost reduction (cash down, trade-in equity, rebates) and capitalized fees.
- Enter the lease term in months and the residual value as a percent of MSRP or in dollars. The lessor sets the residual.
- Enter the money factor, or switch to APR and enter the rate as a percent. The calculator shows the other form for you.
- Under More options add sales tax on the payment and any other fees due at signing. Read the monthly payment, its two parts, the APR equivalent and the total cost.
Formula
Adjusted cap cost = selling price + capitalized fees - cap cost reduction
Depreciation = (adjusted cap cost - residual) / term
Finance charge = (adjusted cap cost + residual) x money factor
Monthly payment = depreciation + finance charge (+ tax on that sum)
APR equivalent = money factor x 2,400
The depreciation part pays for the value the car loses during the lease. The finance charge is the lessor's return on the money tied up. Each part is rounded to the cent, then tax is applied to their sum.
Worked example: a $35,000 MSRP
The selling price is $33,000, the cap cost reduction is $3,000 and the acquisition fee of $800 is capitalized, so the adjusted cap cost is $30,800. The residual is 60% of MSRP, which is $21,000. The term is 36 months and the money factor is 0.00125.
Depreciation is (30,800 - 21,000) / 36 = $272.22. The finance charge is (30,800 + 21,000) x 0.00125 = $64.75. The base payment is $336.97, and with 6% tax ($20.22) the payment is $357.19. The APR equivalent is 0.00125 x 2,400 = 3%.
Due at signing is the $3,000 reduction plus the first payment, $3,357.19. Across 36 payments you pay $12,858.84, so the total including the up-front money is $15,858.84, or $440.52 per month on average.
What the money factor means
A lease quotes its finance cost as a money factor, a small decimal such as 0.00125. Multiply it by 2,400 to get an approximate APR, here 3%. To go the other way, divide an APR by 2,400. The conversion is a convention rather than an exact match, because a lease charges interest on the average of the cap cost and the residual and does not amortize like a loan. Use it to compare a lease's financing cost with a loan's rate, and ask the lessor for the money factor, since it may not be shown on the advertisement.
Why negotiating the price still matters
The residual is set by the lessor, but the selling price is negotiable and it feeds both parts of the payment. Lowering it by $1,000 cuts depreciation by about $27.78 a month on a 36-month lease, plus a small amount of finance charge. Putting more cash down also lowers the payment, but that money is at risk if the car is stolen or totaled early, so compare a low down payment with the effect on your monthly cost.
Compare the cost of leasing with buying using the car payment calculator and the car affordability calculator. Sales tax rules for leases vary by state, so the sales tax calculator can help check a tax amount for your area.
Costs the calculator does not cover
Leases usually have a mileage limit with a charge per extra mile, a disposition fee at the end and charges for excess wear. Some states tax the whole lease or the cap cost up front rather than each payment. Insurance requirements are often higher than for a purchase. Read the full lease worksheet, and compare your expected miles with the allowance. The car depreciation calculator shows what you would have paid for a car that loses value.
Assumptions and limits
- A closed-end lease with equal monthly payments, paid in advance of each month, and the standard depreciation plus finance charge formula.
- The residual and money factor are what you enter. The defaults are example values, not current offers.
- Tax is the rate you enter applied to each monthly payment. Rules for taxing leases vary by state.
- Due at signing is the cap cost reduction plus the first payment plus other fees you enter. Security deposits and similar items are not included.
- Mileage allowances and charges, disposition and wear fees, purchase options, gap coverage and early termination costs are not modeled.
- This is an estimate, not financial advice or a lease offer.
Frequently asked questions
How is a car lease payment calculated?
Divide the amount of value you use, the adjusted cap cost minus the residual, by the number of months. Add a finance charge equal to the cap cost plus the residual times the money factor. Then add any tax.
What is a good money factor?
There is no universal figure, because it depends on credit, the lessor and offers at the time. Convert it to an APR by multiplying by 2,400 and compare that with the loan rates you are quoted.
What is residual value?
It is the lessor's estimate of what the car will be worth at the end of the lease, often given as a percent of MSRP. A higher residual means less depreciation to pay for, so a lower payment.
What does cap cost mean?
Capitalized cost is the amount being financed in the lease, which starts from the negotiated price plus any capitalized fees. The adjusted cap cost subtracts your cap cost reduction, such as a down payment or trade-in equity.
Is a large down payment on a lease a good idea?
It lowers the monthly payment, but if the car is totaled or stolen early the down payment can be lost. Many people prefer to keep the money due at signing small and compare the total cost per month.