Lease

1. **Enter the Net Cap Cost (C):** Start with the vehicle's negotiated selling price. Subtract any down payment, trade-in equity, or manufacturer rebates to get the Net Capitalized Cost.
2. **Enter the Residual Value (R):** Find the residual value from the dealer or leasing company — it is typically listed as a percentage of MSRP. Multiply MSRP by that percentage to get the dollar figure.
3. **Enter the Lease Term (T):** Input the number of months you will lease the vehicle, most commonly 24, 36, or 48 months.
4. **Enter the Money Factor (M):** Ask the dealer for the money factor (e.g., 0.00125). If you only have the APR, divide it by 2,400 to convert.
5. **Enter the Sales Tax Rate (τ):** Input your state or local sales tax rate as a percentage. The calculator will apply it to the monthly payment.
6. **Review your estimated monthly payment:** The result shows your estimated monthly lease payment. Compare this figure across different vehicles or negotiated prices to find the best deal.

Monthly Payment = [(C − R) / T + (C + R) × M] × (1 + τ)

• C — Net Capitalized Cost — the agreed purchase price of the vehicle minus any down payment, trade-in value, or rebates applied to the cap cost.
• R — Residual Value — the projected value of the vehicle at the end of the lease term, set by the lessor (usually expressed as a percentage of MSRP).
• T — Lease Term — the total number of months in the lease (e.g., 24, 36, or 48 months).
• M — Money Factor — the financing rate for the lease, analogous to an interest rate. Multiply by 2,400 to convert to an approximate APR.
• τ — Sales Tax Rate — the local/state sales tax rate expressed as a decimal (e.g., 0.08 for 8%). Tax treatment varies by state; some states tax the full vehicle price, not just monthly payments.

Net Cap Cost (C) = $33,000 − $2,000 = $31,000
Residual Value (R) = $35,000 × 0.55 = $19,250
Depreciation Fee = ($31,000 − $19,250) / 36 = $11,750 / 36 ≈ $326.39
Finance Fee = ($31,000 + $19,250) × 0.00125 = $50,250 × 0.00125 = $62.81
Pre-tax Monthly Payment = $326.39 + $62.81 = $389.20
Monthly Payment with Tax = $389.20 × (1 + 0.08) = $389.20 × 1.08 ≈ $420.34

Result: Estimated monthly lease payment: **$420.34**

In this example, roughly $326 of each monthly payment covers the car's depreciation (the portion of value you use up over 36 months), while about $63 covers the financing charge. The remaining difference is sales tax. Reducing the cap cost through negotiation, increasing the down payment, or finding a vehicle with a higher residual value are the most effective ways to lower your monthly payment. Note: results are estimates and your actual payment may vary based on dealer fees, acquisition fees, and your state's specific tax rules.

Understanding Car Lease Payments

What Is a Car Lease?

Leasing is essentially a long-term rental agreement. You pay to use a vehicle for a set period (usually 24–48 months) and a set number of miles per year. At the end of the term, you return the car or purchase it at the pre-agreed residual value.

Key Lease Terms Explained

• MSRP (Manufacturer's Suggested Retail Price): The sticker price of the vehicle. Residual values and some fees are based on this number.
• Cap Cost Reduction: Any upfront amount (down payment, trade-in, rebate) that reduces the Net Capitalized Cost and therefore lowers monthly payments.
• Money Factor: The lease equivalent of an interest rate. A money factor of 0.00125 equals an APR of approximately 3.0% (0.00125 × 2,400 = 3.0%).
• Residual Value: The higher the residual value, the less depreciation you pay — leading to a lower monthly payment. Vehicles that hold their value well (e.g., trucks, popular SUVs) often have favorable residuals.
• Acquisition Fee: A fee charged by the leasing company (typically $595–$895) usually rolled into the cap cost.
• Disposition Fee: Charged at lease end if you return the car without buying it or leasing another from the same brand.

Leasing vs. Buying

Leasing typically offers lower monthly payments than financing a purchase, but you build no equity. Buying costs more monthly but you own the asset outright once the loan is paid. If you drive high mileage, frequently modify vehicles, or want long-term ownership, buying usually makes more financial sense.

Tips for a Better Lease Deal

1. Negotiate the selling price first, just as you would when buying — the cap cost is negotiable.
2. Check current money factors and residuals on resources like Edmunds forums before visiting the dealership.
3. Avoid rolling fees into the cap cost if you can pay them upfront — it increases your monthly finance charge.
4. Match the mileage allowance to your actual driving to avoid costly per-mile overage fees at lease end (typically $0.15–$0.25 per mile).

Disclaimer: Results produced by this calculator are estimates for educational and planning purposes only. Actual lease payments will depend on dealer-specific fees, state tax rules, credit tier, and the leasing company's current programs. Always review the official lease agreement before signing.

• **Forgetting acquisition and dealer fees:** These are often rolled into the cap cost, increasing your monthly payment beyond the basic formula estimate.
• **Using APR instead of the money factor:** The money factor is APR ÷ 2,400, not APR ÷ 12. Confusing the two will dramatically overstate the finance fee.
• **Applying residual as a dollar amount directly from a percentage without checking the base:** Residual percentages are always applied to MSRP, not the negotiated selling price.
• **Ignoring tax treatment differences by state:** Some states (e.g., Texas) tax the full vehicle value upfront, not just monthly payments, which significantly changes the true cost.
• **Not accounting for the cap cost reduction effect on finance fee:** A larger down payment lowers the cap cost but also reduces the sum (C + R) used in the finance fee calculation — a double benefit many shoppers overlook.
• **Assuming the money factor is fixed:** Money factors are set monthly by the leasing company and vary by model, trim, and credit tier. Always verify the current rate.

• Keys to Vehicle Leasing — A Consumer Handbook — Board of Governors of the Federal Reserve System
• Consumer Leasing Act (Regulation M) — Consumer Financial Protection Bureau (CFPB)

Only sources that have been reviewed are shown. Unverified citations are never published.