Leasing a car offers an alternative to buying, often resulting in lower monthly payments and the ability to drive a new car every few years. However, understanding how these payments are calculated is crucial to ensure you're getting a fair deal. This calculator helps demystify the process by breaking down the key components of a car lease payment.
The Formula Behind the Calculation
The monthly lease payment is primarily composed of two main parts: the depreciation cost and the finance charge (rent charge). Additional costs like sales tax are then applied.
Here's a breakdown of the calculation steps:
1. Calculate Adjusted Capitalized Cost (Cap Cost): This is the price you and the dealer agree on for the vehicle, minus any down payment or trade-in equity.
Adjusted Cap Cost = Vehicle Price - Down Payment - Trade-in Equity (if applicable)
2. Calculate Residual Value: This is the estimated value of the car at the end of the lease term, typically expressed as a percentage of the original MSRP.
Residual Value = Vehicle Price * (Residual Value Percentage / 100)
3. Calculate the Depreciable Base: This is the difference between the Adjusted Capitalized Cost and the Residual Value. This is the amount the car is expected to lose in value over the lease term.
Depreciable Base = Adjusted Cap Cost - Residual Value
4. Calculate the Monthly Depreciation: Divide the Depreciable Base by the number of months in the lease term.
Monthly Depreciation = Depreciable Base / Lease Term (Months)
5. Calculate the Finance Charge (Rent Charge): This is the interest you pay on the lease. It's calculated based on the average amount you'll owe over the lease term. The formula uses the Money Factor (MF), which is derived from the Annual Interest Rate (APR).
Money Factor (MF) = Annual Interest Rate (%) / 2400 Finance Charge = (Adjusted Cap Cost + Residual Value) * Money Factor * Lease Term (Months) Monthly Finance Charge = Finance Charge / Lease Term (Months)
6. Calculate the Base Monthly Payment: Sum of the Monthly Depreciation and the Monthly Finance Charge.
Base Monthly Payment = Monthly Depreciation + Monthly Finance Charge
7. Add Sales Tax: Apply the sales tax to the Base Monthly Payment. Note that sales tax rules vary by state; some tax the entire payment, others only the depreciation, or the value of the car at purchase. This calculator applies tax to the base payment for simplicity.
Total Monthly Payment = Base Monthly Payment * (1 + (Sales Tax Rate (%) / 100))
Key Terms Explained:
Vehicle Price: The agreed-upon price for the car.
Down Payment: The upfront cash payment you make. Reduces the amount financed.
Residual Value Percentage: The projected value of the car at the end of the lease, set by the leasing company. Higher residual value means lower depreciation and lower payments.
Annual Interest Rate (APR): The interest rate charged by the lender. Often expressed as a "Money Factor" (MF) in leases, where MF = APR / 2400.
Lease Term: The duration of the lease agreement, usually in months.
Sales Tax Rate: The tax applied to the lease payment, varying by state and local jurisdiction.
Capitalized Cost (Cap Cost): The negotiated price of the vehicle in the lease.
Adjusted Capitalized Cost: The Cap Cost after subtracting down payments, trade-in equity, and other fees.
This calculator provides an estimate. Actual lease payments may include additional fees such as acquisition fees, disposition fees, higher mileage charges, and taxes on specific lease components, which can vary significantly. Always review your lease contract carefully.
function calculateLeasePayment() {
var vehiclePrice = parseFloat(document.getElementById("vehiclePrice").value);
var downPayment = parseFloat(document.getElementById("downPayment").value);
var residualValuePercentage = parseFloat(document.getElementById("residualValuePercentage").value);
var annualInterestRate = parseFloat(document.getElementById("annualInterestRate").value);
var leaseTermMonths = parseInt(document.getElementById("leaseTermMonths").value);
var salesTaxRate = parseFloat(document.getElementById("salesTaxRate").value);
// Input validation
if (isNaN(vehiclePrice) || vehiclePrice <= 0 ||
isNaN(downPayment) || downPayment < 0 ||
isNaN(residualValuePercentage) || residualValuePercentage 100 ||
isNaN(annualInterestRate) || annualInterestRate < 0 ||
isNaN(leaseTermMonths) || leaseTermMonths <= 0 ||
isNaN(salesTaxRate) || salesTaxRate < 0) {
alert("Please enter valid numbers for all fields.");
return;
}
// 1. Calculate Adjusted Capitalized Cost
var adjustedCapCost = vehiclePrice – downPayment;
// 2. Calculate Residual Value
var residualValue = vehiclePrice * (residualValuePercentage / 100);
// 3. Calculate the Depreciable Base
var depreciableBase = adjustedCapCost – residualValue;
// Ensure depreciable base is not negative (can happen if down payment exceeds adjusted price)
if (depreciableBase < 0) {
depreciableBase = 0;
}
// 4. Calculate Monthly Depreciation
var monthlyDepreciation = depreciableBase / leaseTermMonths;
// 5. Calculate Finance Charge
var moneyFactor = annualInterestRate / 2400;
var financeChargeTotal = (adjustedCapCost + residualValue) * moneyFactor * leaseTermMonths;
var monthlyFinanceCharge = financeChargeTotal / leaseTermMonths;
// 6. Calculate Base Monthly Payment
var baseMonthlyPayment = monthlyDepreciation + monthlyFinanceCharge;
// 7. Add Sales Tax
var totalMonthlyPayment = baseMonthlyPayment * (1 + (salesTaxRate / 100));
// Display the result, formatted to two decimal places
document.getElementById("monthlyPayment").innerText = "$" + totalMonthlyPayment.toFixed(2);
}