Car lease calculator

How is a car lease payment calculated?

Two parts, as in the Federal Reserve lease guide: depreciation — (price − residual value) ÷ months — plus a rent charge — (price + residual) × money factor. Many states then add sales tax to each payment; some collect taxes at the start of the lease.

What is a money factor?

The number used to figure the rent charge, written as a small decimal. Dealers often multiply it by 2,400 for a rough APR — 0.0025 is about 6% — but the Federal Reserve notes a money factor is not a lease rate, so treat that only as a rule of thumb.

What is the residual value?

What the car is expected to be worth at the end of the lease, set by the leasing company as a percent of MSRP. A higher residual means lower payments.

Example: what would I pay?

A $35,000 MSRP car at $33,000 with $2,000 down, 58% residual, 36 months, money factor 0.0025 and 6% tax: $297.22 depreciation + $128.25 rent charge = $425.47, or $451.00 with tax.

Is there an official example?

The Federal Reserve lease guide uses an adjusted cost of $18,800, a $12,350 residual, 48 months and a money factor of 0.00354: $134.38 depreciation plus $110.27 rent charge, about $244.65 a month before tax (the Fed form shows $244.69 after rounding).

Does a bigger down payment make sense on a lease?

It lowers the payment, but you pay for it up front. In the example below, removing the $2,000 down payment raises the payment by $64.19 a month. Money paid up front is also money tied up in a car you do not own, so weigh the saving per month against it.

What costs come at the end of the lease?

According to the Federal Reserve’s leasing guide, if you return the vehicle you are responsible for any excess mileage and excess wear-and-tear charges and for a disposition fee if the lease discloses one. A lease typically also carries an early termination charge if you do not finish the full term. These are not in the monthly payment, so check the contract.

Why can the same car have very different lease payments?

Three inputs drive it: the price you negotiate, the residual value and the money factor. A lower residual or a higher money factor each raises the payment, and the price you negotiate matters as much on a lease as on a purchase because depreciation is taken from it.

The formula, step by step

The starting balance, called the capitalized cost, is the negotiated price plus any fees you roll in, minus the down payment (the capitalized cost reduction) and any trade-in credit. The residual is the percentage of MSRP the lessor expects the car to be worth at the end. The monthly depreciation is (capitalized cost − residual) ÷ months. The rent charge is (capitalized cost + residual) × money factor, because you pay for the average balance financed. Their sum is the base payment, and the sales tax percentage is then applied to it. An APR is converted by dividing by 2,400 to get the equivalent money factor.

Worked example

MSRP $35,000, price $33,000, $2,000 down, 58% residual, 36 months, money factor 0.0025 (about 6% APR) and 6% tax. Capitalized cost is $31,000.00. Residual is 58% of $35,000, $20,300.00. Depreciation is ($31,000.00 − $20,300.00) ÷ 36 = $297.22. Rent charge is ($31,000.00 + $20,300.00) × 0.0025 = $128.25. Base payment is $425.47; with tax the payment is $451.00. Over the term that is $18,236.02 including the down payment, which is about $506.56 a month once the up-front money is spread out.

Change one thing at a time: a 52% residual raises the payment to $507.27; a money factor of 0.0035 raises it to $505.38; a 48-month term (with the same residual) gives $372.24. A lessor usually sets a different residual for a different term, so treat the last number as a rough guide only.

Things to watch

• Do not enter a money factor in the APR box or an APR in the money factor box. 0.0025 is a money factor; the same rate as an APR is 6.
• The residual is a percentage of MSRP, not of the negotiated price, and it is set by the lessor. Ask for it, since it directly sets the depreciation part of the payment.
• Fees and taxes differ by state and by lender. This calculator applies the tax percentage to each monthly payment; some states tax the whole lease at the start, or tax the price.
• Annual mileage limits, excess wear charges and the disposition fee are outside the payment. Add them to your cost comparison with buying.

Estimates for planning only — not financial advice. Your plan documents and contracts decide. How we check our calculators.

Sources: Federal Reserve Board, Vehicle Leasing: A Consumer Resource (Keys to Vehicle Leasing), including the lease payment example and the vehicle-return page. Related tools: auto loan calculator, loan calculator, sales tax calculator.