Car Lease Calculator

The calculation itself

A lease payment is two fees added together. The depreciation fee is (capitalised cost − residual value) ÷ term: the part of the car you use up, spread over the months you have it.

The finance fee is (capitalised cost + residual value) × money factor. The sum, not the difference — the charge is on the average balance outstanding, and a balance falling steadily from cap cost to residual averages their mean. The money factor already absorbs the division by two, which is why it looks so small.

Add the two, add tax on the total, and that is the payment. The money factor converts to an APR by multiplying by 2400: 0.00125 is 3%.

In practice

A $40,000 MSRP car negotiated to $36,000, with $895 of acquisition fees rolled in, gives a capitalised cost of $36,895. A 55% residual on MSRP is $22,000.

Depreciation fee: ($36,895 − $22,000) ÷ 36 = $413.75. Finance fee: ($36,895 + $22,000) × 0.00125 = $73.62. Base payment $487.37, and with 7% tax, $521.48 a month.

So 85% of that payment is depreciation. The financing is a small part of a lease payment at a low money factor, which is why negotiating the price matters more on a lease than the rate does — the price sits in both halves.

Check the money factor: 0.00125 × 2400 = 3%. If a dealer quotes 0.00250 on a deal advertised at 3%, the lease has been marked up to 6% and the difference is theirs.

What is actually negotiable

The capitalised cost is, exactly as a purchase price is. The widespread belief that lease prices are fixed is what makes leases profitable to sell.

The money factor is, up to the buy rate the leasing company set — dealers may mark it up and often do. Asking for the buy rate is a reasonable question and the answer tells you whether one has been applied.

The residual generally is not: it is set by the leasing company against their own forecast. That makes it the one number to shop between cars rather than within a deal — a model with a high residual leases well because there is less depreciation to pay for.

Acquisition and disposition fees are usually fixed, but whether they are capitalised or paid up front is not, and capitalising them means paying the finance fee on them too.

Where the figure deceives

A down payment on a lease lowers the payment and buys you nothing you keep. If the car is written off in month four, that money generally goes to the insurer and the leasing company; you do not get it back. Most advice is to put down as little as the deal allows and take the higher payment.

Advertised lease payments almost always exclude tax, fees and the first payment, and assume a down payment stated in small print. The comparable number is the total of payments plus everything due at signing, which is what this page reports alongside the monthly figure.

Mileage limits are a cost that does not appear in the payment at all. Excess mileage charges are set per mile in the contract and are large enough to change which option was cheaper, so the honest comparison against buying includes an estimate of them.

Acting on it

Negotiate the capitalised cost before discussing the payment, and ask for it in writing. A lease negotiated on the monthly figure is a lease negotiated on the term and the down payment.

Multiply the money factor by 2400 and compare it against a loan rate you could get. If it is much higher, the financing is where the deal is being made.

Compare total lease cost against total ownership cost over the same period, not payment against payment. The lease is cheaper monthly almost by construction — it has to be, since you are only paying for part of the car.