Understanding How Your Car Lease Payment is Calculated
Leasing a vehicle can be a complex financial arrangement. Unlike a traditional auto loan where you pay down the entire value of the car, a lease only requires you to pay for the portion of the vehicle's value that you use during the lease term, plus interest and fees.
The Core Components of a Lease Payment
Gross Capitalized Cost: This is the "negotiated price" of the vehicle. It is the most important number to negotiate, as it forms the basis for your entire payment.
Residual Value: This is the estimated value of the car at the end of the lease. It is set by the leasing company. A higher residual value usually results in a lower monthly payment because you are financing less of the car's depreciation.
Money Factor: This represents the interest rate on the lease. To convert a money factor to a standard APR, multiply it by 2,400. For example, a money factor of 0.00125 is equal to a 3% APR.
Lease Term: The duration of the lease, typically 24, 36, or 48 months.
Realistic Calculation Example
Imagine you are leasing a SUV with an MSRP of $40,000. You negotiate the price down to $38,000 and put $2,000 down.
If the 36-month residual is 60% ($24,000) and the money factor is 0.0015:
Total Monthly Payment: $333.33 + $90.00 = $423.33 (plus taxes)
How to Lower Your Lease Payment
To get the best deal, focus on three things: negotiating a lower sales price (Cap Cost), finding vehicles with high residual values, and ensuring you are not being charged a marked-up money factor by the dealership. Always ask for the "buy rate" of the money factor to ensure you are getting the manufacturer's base interest rate.
function calculateLeasePayment() {
// Retrieve input values
var msrp = parseFloat(document.getElementById('msrp').value);
var salePrice = parseFloat(document.getElementById('salePrice').value);
var downPayment = parseFloat(document.getElementById('downPayment').value) || 0;
var tradeIn = parseFloat(document.getElementById('tradeIn').value) || 0;
var leaseTerm = parseFloat(document.getElementById('leaseTerm').value);
var residualPercent = parseFloat(document.getElementById('residualPercent').value);
var moneyFactor = parseFloat(document.getElementById('moneyFactor').value);
// Basic Validation
if (isNaN(msrp) || isNaN(salePrice) || isNaN(leaseTerm) || isNaN(residualPercent) || isNaN(moneyFactor) || leaseTerm <= 0) {
alert("Please enter valid numerical values for all required fields.");
return;
}
// 1. Calculate Adjusted Capitalized Cost
var capCost = salePrice – downPayment – tradeIn;
// 2. Calculate Residual Value
var residualValue = msrp * (residualPercent / 100);
// 3. Calculate Monthly Depreciation
var depreciationTotal = capCost – residualValue;
// Handle edge case where residual is higher than cap cost
if (depreciationTotal < 0) depreciationTotal = 0;
var monthlyDepreciation = depreciationTotal / leaseTerm;
// 4. Calculate Monthly Rent Charge (Interest)
// Formula: (Adjusted Cap Cost + Residual Value) * Money Factor
var monthlyRentCharge = (capCost + residualValue) * moneyFactor;
// 5. Total Monthly Payment
var totalPayment = monthlyDepreciation + monthlyRentCharge;
// Display Results
document.getElementById('resCapCost').innerHTML = "$" + capCost.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('resResidual').innerHTML = "$" + residualValue.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('resDepreciation').innerHTML = "$" + monthlyDepreciation.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('resRentCharge').innerHTML = "$" + monthlyRentCharge.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('resTotal').innerHTML = "$" + totalPayment.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
// Show the result area
document.getElementById('lease-result-area').style.display = 'block';
}