Understanding How Car Lease Payments are Calculated
Leasing a car is often more complex than a traditional auto loan. Instead of paying for the entire value of the vehicle, you are essentially paying for the depreciation of the car over the period you drive it, plus finance charges (interest) and taxes.
The Key Components of a Lease
MSRP: The Manufacturer's Suggested Retail Price. This is used to determine the residual value.
Gross Capitalized Cost: The negotiated price of the vehicle plus any added fees or insurance.
Capitalized Cost Reduction: This includes your down payment, trade-in credit, and rebates that reduce the amount you need to finance.
Residual Value: What the car is worth at the end of the lease. High residual values lead to lower monthly payments.
Money Factor: The interest rate expressed as a decimal. Multiply the Money Factor by 2,400 to get the approximate APR.
Step-by-Step Calculation Formula
To calculate your lease payment manually, follow these three steps:
Monthly Depreciation: (Adjusted Cap Cost – Residual Value) / Lease Term
Let's look at a typical 3-year lease for a $35,000 SUV:
Factor
Value
Negotiated Price
$32,000
Down Payment
$2,000
Residual Value (60%)
$21,000
Lease Term
36 Months
APR
4.8% (0.002 Money Factor)
In this example, your depreciation cost is roughly $250/month and your interest charge is roughly $106/month. With a 7% tax rate, your final monthly payment would be approximately $381.00.
function calculateLease() {
// Get Input Values
var msrp = parseFloat(document.getElementById('msrp').value);
var negotiatedPrice = parseFloat(document.getElementById('negotiatedPrice').value);
var downPayment = parseFloat(document.getElementById('downPayment').value);
var tradeIn = parseFloat(document.getElementById('tradeIn').value);
var term = parseFloat(document.getElementById('leaseTerm').value);
var resPct = parseFloat(document.getElementById('residualPercentage').value);
var apr = parseFloat(document.getElementById('apr').value);
var tax = parseFloat(document.getElementById('salesTax').value);
// Validate Inputs
if (isNaN(msrp) || isNaN(negotiatedPrice) || isNaN(term) || term <= 0) {
alert("Please enter valid numerical values for price and term.");
return;
}
// 1. Calculate Money Factor
var moneyFactor = apr / 2400;
// 2. Calculate Residual Value
var residualValue = msrp * (resPct / 100);
// 3. Calculate Adjusted Capitalized Cost
var capReduction = downPayment + tradeIn;
var adjCapCost = negotiatedPrice – capReduction;
// 4. Monthly Depreciation Fee
// (Adj Cap Cost – Residual) / Term
var monthlyDepreciation = (adjCapCost – residualValue) / term;
if (monthlyDepreciation < 0) monthlyDepreciation = 0;
// 5. Monthly Rent Charge (Interest)
// (Adj Cap Cost + Residual) * Money Factor
var monthlyFinance = (adjCapCost + residualValue) * moneyFactor;
// 6. Base Monthly Payment
var basePayment = monthlyDepreciation + monthlyFinance;
// 7. Total Payment with Tax
var totalMonthly = basePayment * (1 + (tax / 100));
// Display Results
document.getElementById('resultContainer').style.display = 'block';
document.getElementById('monthlyPayment').innerText = '$' + totalMonthly.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
var breakdownText = "Base Payment: $" + basePayment.toFixed(2) + " + Tax: $" + (totalMonthly – basePayment).toFixed(2);
document.getElementById('calcBreakdown').innerText = breakdownText;
// Scroll to result
document.getElementById('resultContainer').scrollIntoView({ behavior: 'smooth', block: 'nearest' });
}