Lease Calculator

A car lease is essentially a long-term rental. Instead of paying the full price of a vehicle, you pay for the amount the car is expected to depreciate during your lease term, plus interest (called a rent charge) and taxes.

Your monthly lease payment has three components:

• Depreciation: The difference between the car's capitalized cost and its residual value, divided by the lease term. This is usually the largest component.
• Rent Charge (finance charge): Calculated by adding the capitalized cost and residual value, then multiplying by the money factor. This is essentially the interest you pay.
• Sales tax: Applied to the sum of depreciation and rent charge (varies by state).

At the end of the lease, you return the vehicle or purchase it at the predetermined residual value.

The money factor is the lease equivalent of an interest rate. It is expressed as a small decimal number like 0.0025. To convert a money factor to an approximate APR, multiply by 2,400:

APR = Money Factor x 2,400

For example, a money factor of 0.0025 equals approximately 6.0% APR. A lower money factor means lower finance charges and a lower monthly payment.

Money factors are determined by the leasing company based on your credit score, the vehicle, and current market conditions. Borrowers with excellent credit (tier 1) receive the lowest money factors.

• Negotiate the selling price. The capitalized cost (selling price) is negotiable just like a purchase. A lower cap cost directly reduces your monthly payment.
• Look for manufacturer incentives. Lease cash, loyalty bonuses, and conquest offers can reduce your capitalized cost or improve the money factor.
• Choose vehicles with high residual values. Cars that hold their value well (like Honda, Toyota, Lexus) have higher residual percentages, which means lower depreciation and lower payments.
• Put less money down. Unlike buying, a large down payment on a lease is risky. If the car is totaled, you lose that down payment. Keep it minimal and negotiate the monthly payment instead.
• Watch for excess mileage and wear fees. Most leases allow 10,000-15,000 miles per year. Going over can cost $0.15-$0.30 per mile. Choose a mileage allowance that fits your driving habits.