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. Understanding the components of a lease can help you negotiate a better deal.
Key Terms Explained
Gross Capitalized Cost: The total price of the vehicle including the negotiated price plus any fees or taxes.
Residual Value: The estimated value of the car at the end of the lease. This is set by the leasing company.
Money Factor: This is the interest rate on the lease. To find the equivalent APR, multiply the money factor by 2400.
Depreciation Fee: The portion of the payment that covers the loss in value of the car.
The Mathematical Formula
A lease payment consists of two main parts: the Depreciation Fee and the Rent Charge.
1. Depreciation Fee = (Adjusted Cap Cost – Residual Value) / Lease Term
To reduce your monthly costs, focus on negotiating the Cap Cost (the sales price) rather than just the monthly payment. Additionally, look for vehicles with high residual values, as they depreciate less over the term. Always check if there are hidden acquisition fees or "dealer add-ons" that inflate the capitalized cost.
function calculateLeasePayment() {
var msrp = parseFloat(document.getElementById("msrp").value);
var negotiatedPrice = parseFloat(document.getElementById("negotiatedPrice").value);
var downPayment = parseFloat(document.getElementById("downPayment").value) || 0;
var residualPercent = parseFloat(document.getElementById("residualPercent").value);
var leaseTerm = parseFloat(document.getElementById("leaseTerm").value);
var moneyFactor = parseFloat(document.getElementById("moneyFactor").value);
if (isNaN(msrp) || isNaN(negotiatedPrice) || isNaN(residualPercent) || isNaN(leaseTerm) || isNaN(moneyFactor)) {
alert("Please enter all required fields with valid numbers.");
return;
}
// 1. Calculate Adjusted Capitalized Cost
var adjCapCost = negotiatedPrice – downPayment;
// 2. Calculate Residual Value
var residualValue = msrp * (residualPercent / 100);
// 3. Calculate Monthly Depreciation
var monthlyDepreciation = (adjCapCost – residualValue) / leaseTerm;
// 4. Calculate Monthly Rent Charge
var monthlyRentCharge = (adjCapCost + residualValue) * moneyFactor;
// 5. Total Monthly Payment
var totalPayment = monthlyDepreciation + monthlyRentCharge;
// Display Results
if (totalPayment > 0) {
document.getElementById("resCapCost").innerText = "$" + adjCapCost.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById("resResidualVal").innerText = "$" + residualValue.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById("resDepreciation").innerText = "$" + monthlyDepreciation.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById("resRentCharge").innerText = "$" + monthlyRentCharge.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById("resTotalPayment").innerText = "$" + totalPayment.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById("leaseResult").style.display = "block";
} else {
alert("The calculation resulted in an invalid payment. Please check your inputs (e.g., Residual Value might be higher than Negotiated Price).");
}
}