Car Lease Payment Calculator
How to Calculate Your Car Lease Payment
Leasing a car can be a cost-effective way to drive a new vehicle every few years, but the math behind the monthly payment is different from a traditional auto loan. Instead of paying off the entire value of the car, you are essentially paying for the depreciation that occurs during the time you drive it, plus interest and taxes.
The Core Components of a Lease
To use our car lease calculator effectively, you should understand these key terms:
- MSRP/Negotiated Price: This is the starting value of the car. Always try to negotiate this price down, just as if you were buying the car.
- Residual Value: This is the estimated value of the car at the end of the lease. A higher residual value usually results in a lower monthly payment.
- Money Factor: This represents the interest rate. To convert the Money Factor to a standard APR, multiply it by 2400.
- Lease Term: The duration of the lease, typically 24, 36, or 48 months.
Monthly Depreciation = (Net Cap Cost – Residual) / Term
Monthly Rent Charge = (Net Cap Cost + Residual) × Money Factor
Total Monthly = (Depreciation + Rent Charge) + Sales Tax
Example Calculation
Imagine you negotiate a car price to $35,000. The bank sets the residual value at $21,000 after 36 months. You put $2,000 down. Your "Net Capitalized Cost" is $33,000.
1. Depreciation: ($33,000 – $21,000) / 36 = $333.33 per month.
2. Rent Charge: ($33,000 + $21,000) × 0.00125 = $67.50 per month.
3. Subtotal: $400.83. With a 7% tax, your final payment is roughly $428.89.
Lease vs. Buy: Which is Better?
Leasing is generally better for those who want lower monthly payments and enjoy driving a vehicle with the latest technology and safety features under warranty. Buying is better for those who drive many miles (leasing has mileage limits) and want to eventually own the asset and eliminate monthly payments entirely.