Lease Calculator — Monthly Lease Payment
Compute monthly lease payments for equipment or vehicles based on asset value, residual value, money factor, and lease term
Formula
Payment = Depreciation + Finance Charge + Tax
Monthly lease payment combines depreciation (value lost during lease) plus finance charge (interest) plus applicable taxes.
Worked Examples
Example 1: Calculate Lease Payment
Problem:$40,000 car, $22,000 residual, 36 months, 0.00125 money factor.
Solution:Depreciation = ($40,000 - $22,000) / 36 = $500 Finance = ($40,000 + $22,000) × 0.00125 = $77.50 Base payment = $500 + $77.50 = $577.50 Plus tax (~8%): $623.70/month
Result:$623.70/month
Example 2: Convert Money Factor to APR
Problem:Money factor is 0.00167.
Solution:APR = Money Factor × 2400 APR = 0.00167 × 2400 APR = 4.01% This is the equivalent annual interest rate.
Result:4.01% APR
Example 3: Impact of Residual
Problem:Same car, residual 50% vs 60% on $35,000 car.
Solution:50% residual ($17,500): Dep = $486/mo 60% residual ($21,000): Dep = $389/mo Higher residual saves $97/month or $3,492 over 36 months.
Result:$97/mo savings with higher residual
Frequently Asked Questions
How is a lease payment calculated?
Lease payment = Depreciation + Finance Charge + Tax. Depreciation = (Cap Cost - Residual) / Term. Finance Charge = (Cap Cost + Residual) × Money Factor. Unlike loans, you're paying for the car's depreciation during lease term, not its full value.
What is the money factor?
The money factor is how lease interest is quoted, and it converts to an annual rate by multiplying by 2,400. A money factor of 0.00125 is therefore equivalent to 3% APR, and 0.00250 is 6%. Dealers sometimes quote it as a whole number such as 1.25, meaning 0.00125. Always convert it before comparing a lease against a loan, and ask for the buy rate rather than a marked-up version.
What is residual value?
Residual value is the vehicle's projected worth at the end of the lease, set by the leasing company as a percentage of MSRP and published in advance. It matters enormously because you finance the gap between capitalized cost and residual, not the whole car. A higher residual means less depreciation to pay and a lower monthly payment, which is why models that hold value well often lease cheaply despite a high sticker price.
Should I put money down on a lease?
Usually not. A capitalized cost reduction lowers the monthly payment, but it is prepaid depreciation rather than equity, so if the vehicle is stolen or written off early, the insurance settlement goes to the leasing company and your upfront cash is generally not returned. Keeping the drive-off amount to first payment, fees and taxes preserves your flexibility, and gap coverage protects the balance.
What is capitalized cost reduction?
Capitalized cost reduction is anything that lowers the amount being financed: a cash down payment, trade-in equity, or manufacturer rebates applied to the lease. Because the finance charge is calculated from the capitalized cost plus the residual, a reduction cuts both the depreciation component and the rent charge. Confirm that rebates are actually applied to the cap cost rather than quietly absorbed into the dealer's price.
Can I negotiate a lease?
Yes, and the biggest lever is the capitalized cost, which is simply the negotiated selling price of the car. Negotiate that first, exactly as you would on a purchase, before mentioning that you intend to lease. The money factor is also often marked up above the bank's buy rate and can be pushed back. Residual value and the acquisition fee are set by the captive lender and are rarely movable.
What happens at the end of a lease?
You can return the vehicle, buy it for the residual plus a purchase-option fee, or trade it toward another lease. Before returning it, get an independent pre-inspection so you can fix minor damage yourself for less than the leasing company charges, and compare the residual against the car's actual market value. If the car is worth more than the residual, buying it captures that difference.
What is an acquisition fee?
The acquisition fee, sometimes called a bank fee, is charged by the leasing company to originate the lease and commonly runs several hundred dollars. You can pay it upfront or roll it into the capitalized cost, in which case you also pay rent charge on it. It is set by the lender rather than the dealer, so it is rarely negotiable, though promotional leases occasionally waive it.
How do lease mileage limits work?
Leases specify an annual allowance, typically between 10,000 and 15,000 miles, and charge a per-mile fee for anything beyond it at turn-in. Buying extra miles at signing is almost always cheaper per mile than paying the overage rate afterwards, and the higher allowance is priced in through a lower residual. Estimate honestly, because unused prepaid miles are generally not refunded.
Is leasing better than buying?
Leasing gives lower monthly payments, a car under warranty throughout, and no resale risk, which suits drivers who want a new vehicle every few years and stay within the mileage allowance. Buying costs more per month but ends with an asset, and the cheapest option over a long horizon is almost always to buy and keep the car well past the loan payoff. High mileage strongly favours buying.
Background & Theory
Leasing is essentially long-term renting of a vehicle. You pay for depreciation and financing, not the full purchase price.
Lease Payment Formula:
Payment = Depreciation + Finance Charge + Tax
Depreciation:
(Cap Cost - Residual) / Term
Finance Charge:
(Cap Cost + Residual) × Money Factor
Money Factor to APR:
APR = Money Factor × 2400
Key Terms:
| Term | Definition |
|---|---|
| MSRP | Manufacturer's Suggested Retail Price |
| Cap Cost | Negotiated price (before deductions) |
| Cap Reduction | Down payment, trade-in, rebates |
| Residual | Predicted end-of-lease value |
| Money Factor | Interest rate ÷ 2400 |
| Acquisition Fee | Lease initiation fee |
| Disposition Fee | Fee if you return the car |
Negotiation Points:
- Cap cost (selling price)
- Money factor
- Mileage allowance
- Acquisition/disposition fees
When Leasing Makes Sense:
- Drive <15,000 miles/year
- Want new car every 2-3 years
- Don't want maintenance hassles
- Business use (tax advantages)