Auto Lease Calculator: Money Factor & True APR Model

• Worked example:
  $42,000 adjusted cap cost, $27,000 residual, 36 months, 0.0031 MF → about $417 depreciation plus $214 rent = $631 base monthly before tax. Same car at MF 0.00125 (a subsidized program) drops to about $498 base.
• What this misses:
  State lease tax rules, mileage overage charges, wear-and-tear fees at turn-in, disposition fees, and acquisition fees unless you fold them into cap cost. Verify the contract language; the worksheet is not always the deal.
• Also displayed:
  APR equivalent of your money factor, monthly tax estimate, and a lease-vs-buy comparison when you use those fields. Negotiate selling price before monthly payment; the dealer cannot easily reverse-engineer your numbers when you control the cap cost line.

• Depreciation:
  $$\text{Depreciation} = \frac{\text{Adjusted Cap Cost} - \text{Residual Value}}{\text{Term (months)}}$$

  Adjusted cap = negotiated price + fees − down − trade-in − rebates. Residual = MSRP × residual %.

• Rent charge:
  $$\text{Rent Charge} = (\text{Adjusted Cap Cost} + \text{Residual Value}) \times \text{Money Factor}$$

  Finance cost uses cap cost plus residual, not depreciation alone.

• Money factor to APR:
  $$\text{APR} = \text{Money Factor} \times 2400$$

  0.00125 → 3.0% APR. Above 0.0040 (~9.6%) is expensive; negotiate or walk.

• Worked example:
  $45,000 MSRP, $42,000 negotiated, $3,000 down, 60% residual ($27,000), 36 months, MF 0.00125. Adjusted cap = $39,000. Depreciation = ($39,000 − $27,000) / 36 = $333. Rent = ($39,000 + $27,000) × 0.00125 = $82.50. Base = $415.50 + tax.

Small decimal, real rate

• The Conversion Formula:
  $$\text{APR} = \text{Money Factor} \times 2400$$

  Example: Money factor 0.00125 × 2400 = 3.0% APR (excellent). Money factor 0.00375 × 2400 = 9.0% APR (expensive).

• What's a Good Money Factor?
  0.0010 or below = Excellent (2.4% APR or less, often manufacturer-subsidized). 0.0015-0.0025 = Good (3.6-6.0% APR). 0.0030-0.0040 = Average (7.2-9.6% APR). Above 0.0040 = Expensive (9.6%+ APR); negotiate or walk.
• Where Money Factor Comes From:
  The leasing company (often the manufacturer's finance arm) sets the "buy rate." Dealers can mark it up for profit. Ask for the "base money factor" and compare to what they're offering. You can sometimes negotiate money factor down, especially with strong credit.
• Manufacturer Subvention:
  When manufacturers want to move inventory, they subsidize the money factor to artificially low levels (sometimes 0.00001 = essentially 0% APR). These "lease specials" are genuine deals, but only on specific models the manufacturer needs to sell.

Set by the lessor

• Math:
  60% residual on $50,000 MSRP = $30,000 buyout; you finance $20,000 of depreciation over the term.
• Why SUVs lease cheaper per dollar:
  Trucks and SUVs often carry 55–65% residuals; some economy cars sit near 45–55%. A $35,000 SUV at 62% can lease below a $30,000 car at 50%.
• Subvented programs:
  Inflated residuals lower the payment; you are paying for less depreciation than the car may actually lose. Common on slow inventory or model-year closeout.
• Lease end:
  If market value beats your buyout (e.g. worth $24,000, buyout $20,000), buying and selling can capture the gap. If market is below buyout, return the car.

Ten-year mobility cost

• Illustration:
  Three leases at $400 × 36 months ≈ $43,200 plus fees, no asset. Buy at $500 × 60 months ≈ $30,000, then five payment-free years and maybe ~$8,000 trade-in. Net buying near ~$22,000 in this sketch; serial leasing often nearly double.
• Lease can pencil:
  Deductible business use, strict mileage under the allowance, or you replace the car every few years and accept no equity.
• Buy often wins:
  Long ownership, 15,000+ miles a year, modifications, or you want a paid-off car in the driveway.
• Hybrid:
  Lease three years; if you like the car and market value exceeds buyout, exercise the purchase option and keep it several more years.