Leasing a car can be more complex than buying because the payment isn't based on the total value of the vehicle, but rather the depreciation that occurs during the time you drive it. This calculator uses the standard industry formula used by dealerships to determine your monthly obligation.
The Anatomy of a Lease Payment
A car lease consists of three primary components:
Depreciation Fee: This is the value the car loses over the lease term. It is calculated by taking the "Net Capitalized Cost" (the price you negotiated minus your down payment) and subtracting the "Residual Value" (what the car is worth at the end).
Rent Charge: This is essentially the interest you pay for the leasing company to carry the debt. It is calculated using the "Money Factor."
Taxes: Local and state taxes (not included in this base calculator as they vary by zip code).
Understanding the Money Factor
The Money Factor (MF) is the lease equivalent of an APR. To convert a Money Factor to a standard interest rate, multiply it by 2,400. For example, a Money Factor of 0.00125 is equivalent to a 3% APR (0.00125 x 2400 = 3).
Example Calculation
If you negotiate a car price to $30,000, put $2,000 down, and have a 60% residual on a 36-month lease: