Vehicle Lease Calculator

How Vehicle Lease Payments Are Calculated

Leasing a car can seem confusing at first, but the math is actually pretty straightforward once you understand the key components. I've broken it down so you don't have to take the dealer's word for it. Your monthly lease payment is made up of two parts: the depreciation charge and the finance charge.

The depreciation charge is the simplest part. It's the difference between your negotiated price (cap cost) and the residual value, divided by the number of months. The residual value is what the car is expected to be worth at the end of your lease - it's expressed as a percentage of MSRP. A car with a 55% residual over 36 months retains its value better than one with a 45% residual.

The finance charge is where it gets a little tricky. Instead of a traditional APR, leases use a "money factor." To convert a money factor to an APR, you multiply by 2,400. So a money factor of 0.00125 equals a 3% APR. The monthly finance charge is calculated by adding the cap cost and residual value, then multiplying by the money factor.

What Is a Vehicle Lease?

According to Wikipedia, a lease is a contractual arrangement where one party (the lessee) agrees to pay another party (the lessor) for use of an asset. In the context of vehicle leasing, the consumer pays for the vehicle's depreciation during the lease term plus a finance charge, rather than paying for the entire vehicle. At the end of the lease, the vehicle is returned to the lessor unless the lessee exercises a purchase option.

Money Factor vs APR What You Know

I can't tell you how many people walk into a dealership not understanding money factor. Here's the deal: money factor is just APR divided by 2,400. It's a dealer-friendly way of expressing the interest rate that makes it harder for consumers to comparison shop. Always ask for the money factor and convert it to APR yourself. A "good" money factor is generally below 0.002 (equivalent to 4.8% APR).