The lease payment formula
Depreciation = (capitalized cost − residual) ÷ months
Rent charge = (capitalized cost + residual) × money factor
Payment = (depreciation + rent charge) × (1 + sales tax)
Tips for a better lease
- Negotiate the price as if you were buying; it lowers the capitalized cost.
- Ask for the money factor and check it against the APR you could get on a loan.
- Choose a mileage limit you'll really stay under; extra miles often cost $0.15–0.30 each.
Thinking of buying instead? Compare with the auto loan calculator.
Frequently asked questions
How is a lease payment calculated?
A lease payment has two parts. The depreciation fee pays for the value the car loses: (capitalized cost − residual value) ÷ months. The rent charge is the financing cost: (capitalized cost + residual value) × money factor. Sales tax is then added in most US states.
What is a money factor?
The lease's interest rate in a different format. Multiply the money factor by 2,400 to get the approximate APR: a money factor of 0.0025 is about 6% APR. You can enter either one.
What is a good residual value?
Higher is better for you, because you pay for less depreciation. Residuals of 55–65% for a 36-month lease are typical; they're set by the leasing company, not negotiated.
Should I put money down on a lease?
A down payment lowers the monthly payment but not the total cost much, and if the car is stolen or written off early, that money is usually lost. Many experts suggest putting as little down as possible.