Understanding how a car lease is calculated can save you thousands of dollars at the dealership. Unlike a standard car loan where you pay for the entire value of the vehicle plus interest, a lease only charges you for the portion of the car's value you use during the lease term, plus a finance fee called the money factor.
The Components of a Lease
Gross Capitalized Cost: This is the negotiated price of the vehicle plus any added fees or taxes.
Capitalized Cost Reduction: This includes your down payment, trade-in value, and any manufacturer rebates. Subtracting this from the Gross Cap Cost gives you the Net Cap Cost.
Residual Value: This is the estimated value of the car at the end of the lease. It is set by the leasing company and expressed as a percentage of the original MSRP.
Money Factor: This is the interest rate for the lease. To convert APR to Money Factor, divide the APR by 2400.
The Lease Formula
Our calculator uses the industry-standard formula to ensure accuracy:
Monthly Depreciation: (Net Cap Cost – Residual Value) / Lease Term
Final Payment: Base Payment + (Base Payment × Sales Tax Rate)
Example Calculation
Imagine a car with an MSRP of $40,000. You negotiate the price to $37,000. You put $4,000 down. The residual value is 60% ($24,000) for a 36-month lease. The APR is 4.8% (Money Factor of 0.002).
To get the best possible deal, focus on three main areas: the sales price, the money factor, and the residual value. While you cannot change the residual value (set by the bank), you can negotiate the sales price just like a purchase. Additionally, check if the dealership is "marking up" the money factor above the buy rate offered by the lender. A higher credit score will help you secure the lowest possible money factor.
function calculateCarLease() {
var msrp = parseFloat(document.getElementById('msrp').value) || 0;
var salesPrice = parseFloat(document.getElementById('salesPrice').value) || 0;
var downPayment = parseFloat(document.getElementById('downPayment').value) || 0;
var tradeIn = parseFloat(document.getElementById('tradeIn').value) || 0;
var residualPercent = parseFloat(document.getElementById('residualValue').value) || 0;
var term = parseFloat(document.getElementById('leaseTerm').value) || 0;
var apr = parseFloat(document.getElementById('apr').value) || 0;
var taxRate = parseFloat(document.getElementById('salesTax').value) || 0;
if (msrp <= 0 || term <= 0 || salesPrice <= 0) {
alert("Please enter valid numbers for MSRP, Sales Price, and Lease Term.");
return;
}
// 1. Calculate Net Capitalized Cost
var capReduction = downPayment + tradeIn;
var netCapCost = salesPrice – capReduction;
// 2. Calculate Residual Value in Dollars
var residualAmount = msrp * (residualPercent / 100);
// 3. Calculate Depreciation Fee
var depreciationFee = (netCapCost – residualAmount) / term;
if (depreciationFee < 0) depreciationFee = 0;
// 4. Calculate Money Factor and Rent Charge
// Money Factor = APR / 2400
var moneyFactor = apr / 2400;
var rentCharge = (netCapCost + residualAmount) * moneyFactor;
// 5. Total Base Payment
var basePayment = depreciationFee + rentCharge;
// 6. Tax (Assuming tax is applied to monthly payment)
var monthlyTax = basePayment * (taxRate / 100);
var totalMonthlyPayment = basePayment + monthlyTax;
// Display Results
document.getElementById('leaseResults').style.display = 'block';
document.getElementById('resCapCost').innerText = '$' + netCapCost.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('resResidualAmount').innerText = '$' + residualAmount.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('resDepreciation').innerText = '$' + depreciationFee.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('resRentCharge').innerText = '$' + rentCharge.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('resTotalPayment').innerText = '$' + totalMonthlyPayment.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
// Scroll to results
document.getElementById('leaseResults').scrollIntoView({ behavior: 'smooth', block: 'nearest' });
}