Car Lease Calculator

Payment = depreciation + rent charge, where depreciation = (capitalised cost − residual) ÷ months and rent charge = (capitalised cost + residual) × money factor.

M

Manufacturer's suggested retail price: the figure the residual percentage is applied to

P

Negotiated price: what the car actually sells for

D

Down payment or capitalised cost reduction paid at the start

C

Capitalised cost: the negotiated price less the down payment

R

Residual value: the contracted worth of the car at the end of the lease

n

Number of monthly payments in the lease

MF

Money factor: the monthly rate expressed in lease form, equal to the annual rate divided by 2400

Use it before you sit down with a dealer, because the two numbers a lease is built from are usually quoted separately and each one is negotiable in a different way. The negotiated price is ordinary haggling and it moves the payment a little. The residual percentage is set by the lessor and is normally not negotiable at all — but it varies enormously between models, and the reference chart below shows how much of the payment it moves on a single deal by varying that percentage alone. The money factor is the third thing to check, and it is the one most often hidden: divide it into an annual rate by multiplying by 2400, and compare the result against the loan rate you would pay to buy the same car. Finally, use the page to price the decision at the end of the lease rather than only the decision at the start. If you intend to buy the car when the lease ends, the residual is the price you will pay for it, and a high residual that made your payments comfortable becomes an expensive purchase price.

1. A 32,000 car negotiated to 30,000, 55% residual, 36 months

   1. Residual value: 55% of the 32,000 MSRP = 17,600
   2. Capitalised cost: 30,000 negotiated price less 3,000 down = 27,000
   3. Depreciation to spread: 27,000 − 17,600 = 9,400, so 9,400 ÷ 36 = 261.11 a month
   4. Money factor: 7.5 ÷ 2400 = 0.003125, which is half of the 0.625% monthly rate
   5. Rent charge: (27,000 + 17,600) × 0.003125 = 139.38 a month
   6. Payment: 261.11 + 139.38 = 400.49 a month
   7. Total over the lease: 400.49 × 36 = 14,417.64 of payments, plus the 3,000 down = 17,417.64

   The default, and the clearest possible statement of how a lease divides: 261.11 for the part of the car you use up and 139.38 for the money. The residual is 55% of the 32,000 sticker, not of the 30,000 you negotiated — which means haggling the price down does not make the buy-out at the end any cheaper.

2. The same lease after 3,000 off the price

   1. Only the negotiated price changes, from 30,000 to 27,000; the MSRP does not, so the residual is still 17,600
   2. Capitalised cost: 27,000 − 3,000 = 24,000
   3. Depreciation: 24,000 − 17,600 = 6,400, so 6,400 ÷ 36 = 177.78 a month
   4. Rent charge: (24,000 + 17,600) × 0.003125 = 130.00 a month
   5. Payment: 177.78 + 130.00 = 307.78 a month
   6. Monthly saving: 400.49 − 307.78 = 92.71, on 3,000 of price reduction

   The single-variable control for the example above: one number moved, everything else held. The saving is 92.71 a month, not the 83.33 that 3,000 over 36 months would suggest, because the rent charge falls as well — the financing base is 3,000 smaller for the whole term.

3. Forty-eight months at a 65% residual with nothing down

   1. Residual value: 65% of the 32,000 MSRP = 20,800
   2. Capitalised cost: 30,000, with nothing paid down
   3. Depreciation: 30,000 − 20,800 = 9,200, over 48 months = 191.67 a month
   4. Money factor: 6 ÷ 2400 = 0.0025
   5. Rent charge: (30,000 + 20,800) × 0.0025 = 127.00 a month
   6. Payment: 191.67 + 127.00 = 318.67 a month
   7. Total of payments: 318.67 × 48 = 15,296.16, with no down payment

   A stronger residual and a lower rate both pull the payment down — 318.67 against 400.49 — and the longer term spreads the depreciation further. But look at the totals: 15,296.16 here against 14,417.64 of payments on the default, plus 3,000 down there. The cheaper monthly payment is not the cheaper lease, and the buy-out price at the end is 20,800.

The payment this page produces is the depreciation and the finance charge, and those two lines are not the whole cost of a lease by a long way. Sales tax is absent, and it is charged differently from a purchase in most places — often on each monthly payment rather than on the price, sometimes on the full price at the start — so the figure here is before tax whichever way your jurisdiction does it. Fees are absent: acquisition fees, disposition fees at hand-back, documentation charges, registration and title. Mileage is absent and it is the single most expensive thing to get wrong: a lease includes an annual mileage allowance, and the charge for exceeding it is levied per mile at the end. Wear and tear beyond normal use is charged too. Capitalised cost reduction — the down payment field here — is worth understanding before you use it: paying money up front lowers the monthly payment, but if the car is written off in the first month, that money is generally gone, because insurance settles the car and not your deposit. Nothing here covers early termination, which is usually the most expensive way out of a lease, or lease-end purchase fees. Finally, no currency is attached to any figure, and the residual percentage and money factor conventions vary by market — outside North America a lease may be quoted as a monthly rate on the outstanding value instead, in which case this page's money factor field is not the right input.

What is a money factor?

It is how a lease states its interest rate, and it is deliberately hard to compare. Multiply it by 2400 to get the annual percentage rate: 0.003125 × 2400 = 7.5%. The reason the number looks tiny is that a lease charges interest on roughly the average of the car's starting and ending values, so the rate is applied to about half the balance — which is why the multiplier is 2400 rather than 1200.

Is a lease cheaper than buying?

The monthly payment usually is, and the total cost usually is not, because at the end of a lease you own nothing. A lease is cheaper if you would otherwise buy a new car every three years and trade it in, since the lease is doing the same thing with a known end value. It is more expensive if you keep cars for a decade, because you are paying for the steepest part of the depreciation curve and then handing the car back.

How do I lower the monthly payment?

Three levers, in order of how much they move: choose a car with a higher residual percentage, negotiate the price down, and put more money down. The first is the largest and is a choice about the car, not the deal. The second saves about 30.90 a month per 1,000 over 36 months, a little more than dividing the discount by the term because the rent charge falls with it. The third lowers the payment but only by prepaying it, and it is at risk if the car is written off.

What happens at the end of the lease?

You hand the car back, or you buy it for the residual value that was fixed at the start, or you use any equity as a trade-in on the next one. The residual is the number to watch: a high residual made your payments low, and it also sets a high purchase price if you decide you want to keep the car.

Why does the residual use the sticker price and not the negotiated price?

Because the lessor is estimating what the car will be worth in the used market, and the used market does not know what discount you negotiated. So the residual is a percentage of the MSRP, which means haggling reduces what you finance but not what you would pay to buy the car at the end of the lease.

What is the biggest risk in a lease?

Mileage, and then wear. The lessor sets an annual mileage allowance, and the per-mile charge for exceeding it is assessed when you hand the car back, on the whole overage at once. A lease that runs a few thousand miles a year over the allowance produces a bill at the end that was never in the monthly payment. Ask for the allowance and the excess rate in writing before signing.

• 12 CFR Part 1013 — Consumer Leasing (Regulation M): what a vehicle lease must disclose, including the capitalised cost, the residual value and the rent charge — Electronic Code of Federal Regulations, Office of the Federal Register (United States)
• Publication 463 — Travel, Gift, and Car Expenses: how lease payments are treated for tax when a vehicle is used for business — Internal Revenue Service (United States)