Auto Leasing Calculator

Understanding Your Auto Lease Payment

Leasing a vehicle can be a financially attractive option for many drivers, often allowing for lower monthly payments and the ability to drive a new car every few years. However, understanding how your monthly payment is calculated is crucial to making an informed decision. This calculator helps demystify the process.

The Core Components of a Lease Payment

A typical auto lease payment is comprised of several key elements. Our calculator uses the following inputs to determine your estimated monthly cost:

• Vehicle Price: This is the Manufacturer's Suggested Retail Price (MSRP) of the vehicle you intend to lease.
• Down Payment: Also known as a "cap cost reduction" or "capitalized cost reduction," this is the amount you pay upfront to reduce the capitalized cost of the vehicle. This directly lowers your monthly payments.
• Residual Value Percentage: At the end of the lease term, the vehicle has a predicted value, known as the residual value. This is typically expressed as a percentage of the original MSRP. Leases are structured based on the difference between the vehicle's value at the start and its predicted value at the end. A higher residual value generally leads to lower monthly payments.
• Lease Term (Months): This is the duration of your lease agreement, usually ranging from 24 to 48 months.
• Money Factor: This is the finance charge on your lease, expressed as a small decimal. It's the lease equivalent of an interest rate. To convert it to an Annual Percentage Rate (APR), you multiply the money factor by 2400. For example, a money factor of 0.00125 is equivalent to a 3% APR (0.00125 * 2400 = 3).
• Sales Tax Rate: This is the tax applied to your monthly lease payment, which varies by state and locality. Some states tax the entire lease upfront, while others tax only the monthly payment. This calculator assumes tax is applied monthly.

How the Monthly Payment is Calculated

The calculation for a monthly lease payment involves a few steps:

1. Determine the Depreciation Amount: This is the difference between the vehicle's price and its predicted residual value.
   Depreciation = Vehicle Price - (Vehicle Price * Residual Value Percentage / 100)
2. Calculate the Amortizing Depreciation Cost: This is the total depreciation spread evenly over the lease term.
   Amortizing Depreciation = Depreciation / Lease Term (Months)
3. Calculate the Finance Charge (Rent Charge): This is based on the average balance of the lease over its term and the money factor. A common approximation is to use the average of the initial lease balance and the residual value.
   Average Lease Balance = (Vehicle Price - Down Payment + Residual Value) / 2
Finance Charge per Month = Average Lease Balance * Money Factor * 2400 (if Money Factor is given as a decimal) OR Average Lease Balance * Money Factor (if Money Factor is already APR equivalent)
   Note: For simplicity and common practice, this calculator uses the Money Factor directly with the depreciating balance. A more precise method involves calculating interest on the *remaining* balance each month. A simplified and commonly used formula is:
   Finance Charge per Month = (Vehicle Price - Down Payment + Residual Value) / 2 * Money Factor
   A slightly more accurate common method focuses on the depreciated cost:
   Finance Charge per Month = (Vehicle Price - Down Payment) * Money Factor (This is a simplified but often used approximation for the rent charge)
   Let's refine this using a standard approach: The cost to be financed is the (Vehicle Price – Down Payment). The residual value is guaranteed. The portion you pay for is the depreciation. Interest is charged on the average capital cost.
   Capitalized Cost = Vehicle Price - Down Payment
Depreciated Cost = Capitalized Cost - Residual Value
Monthly Depreciation Cost = Depreciated Cost / Lease Term
Monthly Finance Charge = (Capitalized Cost + Residual Value) / 2 * Money Factor (This is a common approximation)
4. Calculate the Pre-Tax Monthly Payment: Sum the monthly depreciation cost and the monthly finance charge.
   Pre-Tax Monthly Payment = Monthly Depreciation Cost + Monthly Finance Charge
5. Apply Sales Tax: Add the sales tax to the pre-tax monthly payment.
   Total Monthly Payment = Pre-Tax Monthly Payment * (1 + Sales Tax Rate / 100)

Example Calculation

Let's assume:

• Vehicle Price: $40,000
• Down Payment: $2,000
• Residual Value Percentage: 55%
• Lease Term: 36 months
• Money Factor: 0.00150 (equivalent to 3.6% APR)
• Sales Tax Rate: 8%

Here's how the calculation would break down:

1. Capitalized Cost: $40,000 – $2,000 = $38,000
2. Residual Value: $40,000 * (55 / 100) = $22,000
3. Depreciated Cost: $38,000 – $22,000 = $16,000
4. Monthly Depreciation Cost: $16,000 / 36 months = $444.44
5. Monthly Finance Charge (approx): ($38,000 + $22,000) / 2 * 0.00150 = $30,000 * 0.00150 = $45.00
6. Pre-Tax Monthly Payment: $444.44 + $45.00 = $489.44
7. Sales Tax Amount: $489.44 * (8 / 100) = $39.16
8. Total Monthly Payment: $489.44 + $39.16 = $528.60

This calculator provides an estimate based on these standard formulas. Actual lease offers may include additional fees, dealer incentives, or different calculation methods.

When to Use an Auto Lease Calculator

Use this calculator when you are:

• Researching potential vehicle leases.
• Comparing different lease offers.
• Negotiating a lease deal with a dealership.
• Trying to understand the impact of a down payment or lease term on your monthly payments.

By inputting the key figures, you can get a clearer picture of the potential monthly cost and make more confident decisions about your next vehicle.