Leasing a vehicle can be a complex financial decision. Unlike a traditional auto loan where you pay off the total value of the car, a lease only charges you for the portion of the car's value you use over the lease term. Our calculator breaks down these costs into three main components: depreciation, finance fees, and taxes.
Key Leasing Terms Explained
MSRP (Vehicle Price): The total price of the car before any discounts or trade-ins.
Residual Value: The estimated value of the car at the end of the lease. This is set by the leasing company. A higher residual value usually means a lower monthly payment.
Money Factor: Essentially the interest rate on a lease. To convert this to an APR (Annual Percentage Rate), multiply the money factor by 2400. For example, a money factor of 0.00125 equals a 3% APR.
Capitalized Cost Reduction: This includes your down payment, trade-in value, and any manufacturer rebates. It reduces the total amount you need to finance.
How the Formula Works
To calculate the base monthly payment, we use two primary formulas:
Monthly Depreciation: (Gross Capitalized Cost – Residual Value) ÷ Term in Months
The sum of these two figures is your base payment. We then apply your local sales tax to reach the final monthly total.
Example Calculation
Imagine you want to lease a sedan with an MSRP of $30,000 for 36 months. The leasing company sets a residual value of 60% ($18,000). You have a $2,000 down payment and a money factor of 0.0015 (3.6% APR). With a 7% tax rate: