Car Lease Calculator

A car lease can be an attractive alternative to buying, often offering lower monthly payments and the ability to drive a new car every few years. However, the calculations behind a lease can seem complex. Our Car Lease Calculator simplifies this process, but understanding the components is key to negotiating a good deal. This article breaks down the essentials of car lease calculations.

The Core Components of a Car Lease Calculation

Your monthly lease payment is primarily determined by three main factors: the vehicle's depreciation, the rent charge (interest), and taxes.

1. Depreciation Cost

This is the biggest part of your payment. It's the difference between the car's negotiated price (the "Capitalized Cost") and its expected value at the end of the lease (the "Residual Value").

Formula: Depreciation = (Capitalized Cost - Residual Value) / Number of Months

• Capitalized Cost: This is the selling price of the car. It's negotiable, just like when you're buying. A lower capitalized cost directly reduces your monthly payment. Any down payment, trade-in equity, or rebates are subtracted from this price to get the "Adjusted Capitalized Cost."
• Residual Value: This is the car's projected wholesale value at the end of the lease, expressed as a percentage of the MSRP (Manufacturer's Suggested Retail Price). This value is set by the leasing company and is not negotiable. A higher residual value means less depreciation, resulting in a lower payment.

2. Rent Charge (Finance Fee)

This is the interest you pay for leasing the car. It's calculated using a "Money Factor," which is similar to an APR but expressed differently. To convert a money factor to an APR, you simply multiply it by 2400.

Formula: Monthly Rent Charge = (Adjusted Capitalized Cost + Residual Value) * Money Factor

A lower money factor, just like a lower APR, means you pay less in finance fees. Your credit score significantly influences the money factor you're offered.

3. Sales Tax

Sales tax on a lease is handled differently depending on the state. Most states tax the monthly payment (depreciation + rent charge). Some states, however, require you to pay sales tax on the full capitalized cost of the vehicle upfront.

Formula (most states): Monthly Sales Tax = (Monthly Depreciation + Monthly Rent Charge) * Sales Tax Rate

Putting It All Together: The Monthly Payment

Your total estimated monthly lease payment is the sum of these three parts:

Total Monthly Payment = Monthly Depreciation + Monthly Rent Charge + Monthly Sales Tax

Practical Example

Let's use our Car Lease Calculator to see how this works:

• Vehicle Price (Cap Cost): $35,000
• Down Payment: $2,000
• Lease Term: 36 months
• Residual Value: 60% of $36,000 MSRP = $21,600
• Money Factor: 0.00125 (equivalent to 3% APR)
• Sales Tax: 7%

1. Adjusted Cap Cost: $35,000 (Price) - $2,000 (Down Payment) = $33,000
2. Total Depreciation: $33,000 (Adjusted Cap Cost) - $21,600 (Residual) = $11,400
3. Monthly Depreciation: $11,400 / 36 months = $316.67
4. Monthly Rent Charge: ($33,000 + $21,600) * 0.00125 = $68.25
5. Monthly Pre-Tax Payment: $316.67 + $68.25 = $384.92
6. Monthly Sales Tax: $384.92 * 0.07 = $26.94
7. Total Monthly Payment: $384.92 + $26.94 = $411.86