Auto Lease Payment Calculator
Depreciation Portion: /mo
Rent Charge (Interest): /mo
Sales Tax: /mo
Total Cost over Lease:
Understanding How Car Leases Work
Leasing a car is essentially paying for the vehicle's depreciation during the time you drive it, rather than paying for the entire value of the car. This is why lease payments are typically lower than loan payments for the same vehicle.
Key Terms in Lease Calculations
- MSRP: The Manufacturer's Suggested Retail Price. This is used to calculate the residual value.
- Gross Capitalized Cost: The negotiated price of the vehicle plus any added fees or taxes rolled into the lease.
- Residual Value: What the car is estimated to be worth at the end of the lease. High residual values lead to lower monthly payments.
- Money Factor: This is the interest rate of the lease. To convert this to a familiar APR, multiply the money factor by 2400.
- Cap Cost Reduction: Any amount that reduces the total price, such as your down payment or trade-in value.
Example Calculation Breakdown
Imagine you are leasing a car with an MSRP of $40,000, but you negotiate the price down to $37,000. If the residual value is 60%, the car is worth $24,000 after the lease. You are essentially financing the $13,000 difference (the depreciation) over your lease term, plus interest and taxes.
Tips for Getting a Better Lease Deal
1. Negotiate the Sales Price: Many people don't realize that the "Cap Cost" is negotiable just like a purchase price. The lower the sales price, the lower the depreciation you have to cover.
2. Check the Money Factor: Dealerships sometimes mark up the interest rate. Always ask what the "buy rate" is from the manufacturer's captive finance company.
3. Watch Your Mileage: Lease contracts have strict mileage limits. If you drive more than the limit (usually 10,000 to 12,000 miles per year), you will face hefty fees at the end of the term.