Leasing a vehicle is often more complex than a standard car loan because you are essentially paying for the vehicle's depreciation during the time you drive it, rather than the full purchase price. To get the most out of this calculator, it's important to understand the key variables involved.
Key Leasing Terms Explained
Gross Capitalized Cost: This is the negotiated price of the vehicle. Just like buying a car, you should always negotiate the "Cap Cost" rather than just looking at the monthly payment.
Residual Value: This is the estimated value of the car at the end of the lease term. It is set by the leasing company. A higher residual value results in a lower monthly payment because you are paying for less depreciation.
Money Factor: This is the interest rate of the lease. To convert a Money Factor to a standard APR, multiply it by 2400. For example, a money factor of 0.00125 is equivalent to a 3% APR.
Capitalized Cost Reduction: This includes your down payment, trade-in value, and any manufacturer rebates. These amounts reduce the initial balance used to calculate depreciation.
The Lease Formula
The monthly lease payment is actually the sum of three distinct parts:
Depreciation Fee: (Net Cap Cost – Residual Value) ÷ Term in Months