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Understanding Your Car Lease Payment
Leasing a car can be an attractive alternative to buying, often offering lower monthly payments and the ability to drive a new car every few years. However, understanding how your monthly payment is calculated is key to making an informed decision. This calculator helps demystify the process.
The Key Components of a Lease Payment
Your monthly lease payment is not simply a fraction of the car's price. It's primarily composed of two main parts:
Depreciation Cost: This is the portion of the car's value that you will "use up" during the lease term. It's calculated as the difference between the car's initial price and its estimated value at the end of the lease (residual value).
Finance Charge (Rent Charge): This is similar to the interest you would pay on a loan. It's calculated on the average amount of money the leasing company has tied up in the vehicle throughout the lease.
How the Calculation Works
The formula for calculating the monthly lease payment involves several steps. Here's a breakdown:
1. Calculate Capitalized Cost (Cap Cost):
Cap Cost = Vehicle Price - Down Payment - Other Capitalized Cost Reductions (e.g., trade-in equity, rebates) (For simplicity, this calculator assumes no other capitalized cost reductions besides down payment.)
2. Calculate Depreciation Amount:
Residual Value = Vehicle Price * (Residual Value Percentage / 100)
Depreciation Amount = Cap Cost - Residual Value
3. Calculate Monthly Depreciation Cost:
Monthly Depreciation = Depreciation Amount / Lease Term (in months)
4. Calculate Money Factor:
Money Factor = Annual Interest Rate / 2400 (This is a standard conversion to represent the interest rate as a monthly factor.)
5. Calculate Monthly Finance Charge:
Average Lease Balance = (Cap Cost + Residual Value) / 2
Monthly Finance Charge = Average Lease Balance * Money Factor * Lease Term (in months)
6. Calculate Total Monthly Payment:
Total Monthly Payment = Monthly Depreciation + Monthly Finance Charge (This excludes taxes, fees, and potential excess mileage charges, which are additional costs.)
Using the Calculator
Vehicle Price (MSRP): Enter the Manufacturer's Suggested Retail Price of the vehicle you're interested in.
Down Payment: Enter the amount you plan to pay upfront. This reduces the capitalized cost and thus your monthly payments.
Residual Value Percentage: This is the estimated value of the car at the end of the lease, expressed as a percentage of the original MSRP. Higher residual values generally lead to lower monthly payments. Check with the dealer or manufacturer for typical residual values for specific models and lease terms.
Annual Interest Rate (%): This is the financing rate applied to the lease. It's often expressed as a "money factor" by dealers, but this calculator accepts the annual percentage rate (APR).
Lease Term (Months): The duration of the lease agreement, typically ranging from 24 to 48 months.
Important Considerations
This calculator provides an estimate. Actual lease payments may vary due to:
Acquisition Fees & Disposition Fees: One-time fees charged at the beginning and end of the lease, respectively.
Sales Tax: Applied to your monthly payment in most states.
Dealer Discounts: Negotiated prices below MSRP can significantly lower your capitalized cost.
Mileage Allowances: Exceeding your agreed-upon mileage limit will result in per-mile charges.
Wear and Tear: Excessive damage beyond normal wear and tear can incur charges at lease end.
Always review the full lease contract carefully and consult with the dealership for a precise quote.
function calculateLeasePayment() {
var carPrice = parseFloat(document.getElementById("carPrice").value);
var downPayment = parseFloat(document.getElementById("downPayment").value);
var residualValuePercent = parseFloat(document.getElementById("residualValue").value);
var annualInterestRate = parseFloat(document.getElementById("interestRate").value);
var leaseTerm = parseInt(document.getElementById("leaseTerm").value);
var resultDiv = document.getElementById("result");
if (isNaN(carPrice) || isNaN(downPayment) || isNaN(residualValuePercent) || isNaN(annualInterestRate) || isNaN(leaseTerm) ||
carPrice <= 0 || downPayment < 0 || residualValuePercent 100 || annualInterestRate < 0 || leaseTerm <= 0) {
resultDiv.innerHTML = "Please enter valid numbers for all fields.";
resultDiv.style.backgroundColor = "#dc3545"; // Red for error
return;
}
// 1. Calculate Capitalized Cost (Cap Cost)
var capCost = carPrice – downPayment;
// 2. Calculate Residual Value
var residualValue = carPrice * (residualValuePercent / 100);
// 3. Calculate Depreciation Amount
var depreciationAmount = capCost – residualValue;
if (depreciationAmount < 0) depreciationAmount = 0; // Cannot have negative depreciation in this context
// 4. Calculate Monthly Depreciation Cost
var monthlyDepreciation = depreciationAmount / leaseTerm;
// 5. Calculate Money Factor
var moneyFactor = annualInterestRate / 2400;
// 6. Calculate Monthly Finance Charge
var averageLeaseBalance = (capCost + residualValue) / 2;
var monthlyFinanceCharge = averageLeaseBalance * moneyFactor * leaseTerm;
// 7. Calculate Total Monthly Payment
var totalMonthlyPayment = monthlyDepreciation + monthlyFinanceCharge;
// Display the result
resultDiv.innerHTML = "$" + totalMonthlyPayment.toFixed(2) +
"Estimated Monthly Payment (before tax & fees)";
resultDiv.style.backgroundColor = "#28a745"; // Green for success
}