Leasing a vehicle is significantly different from a traditional auto loan. Instead of paying for the entire value of the car, you are essentially paying for the depreciation that occurs during the period you drive it, plus interest (known as the Money Factor).
Key Leasing Terms Defined
Gross Capitalized Cost: This is the negotiated price of the vehicle plus any added fees or taxes you choose to finance.
Capitalized Cost Reduction: This includes your down payment, trade-in equity, and any manufacturer rebates that lower the amount being financed.
Residual Value: This is the estimated value of the car at the end of the lease. A higher residual value results in a lower monthly payment because you are responsible for less depreciation.
Money Factor: This is the interest rate on a 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.
Example Calculation Breakdown
Imagine you negotiate a car price to $35,000 with a 36-month term. If the residual value is 60% ($21,000), you are responsible for $14,000 of depreciation. Over 36 months, your base depreciation payment would be roughly $388.89. The money factor is then applied to the sum of the Cap Cost and Residual Value to determine the monthly rent charge.
How to Get the Best Lease Deal
To lower your payment, focus on three things: negotiating a lower purchase price (Gross Cap Cost), finding vehicles with high residual values, and ensuring the dealer isn't marking up the "buy rate" money factor offered by the manufacturer's captive finance company.
function calculateLeasePayment() {
var msrp = parseFloat(document.getElementById('msrp').value);
var downPayment = parseFloat(document.getElementById('downPayment').value) || 0;
var tradeIn = parseFloat(document.getElementById('tradeIn').value) || 0;
var term = parseFloat(document.getElementById('term').value);
var residualPercent = parseFloat(document.getElementById('residualPercent').value);
var moneyFactor = parseFloat(document.getElementById('moneyFactor').value);
var taxRate = parseFloat(document.getElementById('taxRate').value) || 0;
var fees = parseFloat(document.getElementById('fees').value) || 0;
if (isNaN(msrp) || isNaN(term) || isNaN(residualPercent) || isNaN(moneyFactor) || term <= 0) {
alert("Please enter valid numeric values for all fields.");
return;
}
// 1. Adjusted Capitalized Cost
var capCost = msrp + fees – downPayment – tradeIn;
// 2. Residual Value
var residualValue = msrp * (residualPercent / 100);
// 3. Depreciation Fee
// (Adjusted Cap Cost – Residual Value) / Term
var depreciationFee = (capCost – residualValue) / term;
// 4. Finance Fee (Rent Charge)
// (Adjusted Cap Cost + Residual Value) * Money Factor
var financeFee = (capCost + residualValue) * moneyFactor;
// 5. Base Monthly Payment
var basePayment = depreciationFee + financeFee;
// 6. Total Monthly Payment with Tax
var totalMonthly = basePayment * (1 + (taxRate / 100));
// 7. Total Cost of Lease
var totalOutlay = (totalMonthly * term) + downPayment + tradeIn;
// Display Results
var resultDiv = document.getElementById('leaseResult');
var monthlyTotalDisplay = document.getElementById('monthlyTotal');
var breakdownDisplay = document.getElementById('breakdown');
resultDiv.style.display = 'block';
monthlyTotalDisplay.innerText = '$' + totalMonthly.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
breakdownDisplay.innerHTML =
"Monthly Depreciation: $" + depreciationFee.toFixed(2) + "" +
"Monthly Rent Charge: $" + financeFee.toFixed(2) + "" +
"Monthly Tax: $" + (totalMonthly – basePayment).toFixed(2) + "" +
"Total Lease Cost (Payments + Down): $" + totalOutlay.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}) + "" +
"Equivalent APR: " + (moneyFactor * 2400).toFixed(2) + "%";
}