Car Lease Monthly Payment Calculator
How to Calculate Car Lease Payments
Understanding how car lease payments are calculated can save you thousands of dollars at the dealership. Unlike a traditional auto loan where you pay for the entire value of the car, a lease only charges you for the depreciation of the vehicle during the time you drive it, plus interest and taxes.
The Lease Formula Explained
A lease payment consists of three primary components:
- Depreciation Fee: This is the (Net Capitalized Cost – Residual Value) divided by the term. It covers the value the car loses while you have it.
- Finance Fee (Rent Charge): Calculated as (Net Capitalized Cost + Residual Value) × Money Factor. This is effectively the interest you pay.
- Sales Tax: Most states apply sales tax to the monthly payment rather than the total price of the car.
What is the Money Factor?
The Money Factor is the interest rate for a lease. To convert a standard APR into a Money Factor, divide the APR by 2400. For example, an APR of 6% is equal to a Money Factor of 0.0025 (6 / 2400). Always ask for the Money Factor when negotiating to ensure you aren't being overcharged on interest.
Practical Example
Imagine you are leasing a $40,000 SUV for 36 months. The residual value is 60% ($24,000). You put $4,000 down, leaving a capitalized cost of $36,000.
1. Monthly Depreciation: ($36,000 – $24,000) / 36 = $333.33
2. Monthly Finance Fee: ($36,000 + $24,000) * 0.0025 = $150.00
3. Base Payment: $333.33 + $150.00 = $483.33 plus tax.