Car Lease Payment Calculator
How Car Lease Payments Are Calculated
Unlike a traditional car loan where you pay for the entire value of the vehicle, a lease payment is primarily based on the vehicle's depreciation during the time you drive it. To understand your monthly payment, you need to look at three main components: Depreciation, Rent Charge, and Taxes.
1. The Depreciation Fee
This is the largest part of your lease payment. It is calculated by taking the "Adjusted Capitalized Cost" (the price you negotiated minus any down payment or trade-in) and subtracting the "Residual Value" (what the car is estimated to be worth at the end of the lease). This total is then divided by the number of months in the lease term.
2. The Rent Charge (Interest)
The rent charge is essentially the interest you pay for the leasing company's capital. In leasing, instead of an APR, we use a Money Factor. To find the equivalent APR, multiply the money factor by 2400. The rent charge formula is unique: (Adjusted Cap Cost + Residual Value) × Money Factor.
3. Residual Value
Residual value is a percentage of the original MSRP. For example, if a $40,000 car has a 60% residual value after 36 months, it is predicted to be worth $24,000. A higher residual value results in lower monthly payments because you are paying for less depreciation.
Real-World Example
Imagine you are leasing a car with a $35,000 MSRP for 36 months:
- Negotiated Price: $33,000
- Down Payment: $2,000
- Residual Value: 60% ($21,000)
- Money Factor: 0.0015 (3.6% APR)
In this scenario, your Adjusted Cap Cost is $31,000. Your monthly depreciation would be ($31,000 – $21,000) / 36 = $277.77. Your monthly rent charge would be ($31,000 + $21,000) * 0.0015 = $78.00. Adding these together (before tax) gives a payment of $355.77 per month.