Auto Lease Calculator: Complete Guide to Car Leasing Math
Free auto lease calculator with money factor conversion, depreciation breakdown, and total cost analysis. Understand cap cost, residual value, and rent charges before signing.
How Car Lease Payments Are Calculated
The Three Components of Every Lease Payment
- Depreciation Charge:Depreciation = (Adjusted Cap Cost - Residual Value) รท Term Months
This is the largest portionโyou're paying for how much the car loses in value during your lease. Lower negotiated price or higher residual = lower depreciation charge.
- Rent Charge (Interest):Rent Charge = (Adjusted Cap Cost + Residual Value) ร Money Factor
This is the financing cost. Unlike depreciation, it's based on the SUM of cap cost and residualโa quirk of lease math that benefits understanding.
- Adjusted Capitalized Cost:Cap Cost = Negotiated Price + Acquisition Fees + Rolled-in Costs - Down Payment - Trade-in - Rebates. This is your "loan amount" equivalent. Negotiate the price BEFORE discussing monthly payments.
- Sales Tax:Most states tax the monthly payment (not the full vehicle price). Some states tax the entire cap cost reduction upfront. Check your state's lease tax rulesโthis significantly affects total cost.
Understanding the formula lets you identify where dealers add profit and where you can negotiate. Every lease payment consists of depreciation, rent charge (interest), and taxes.
The Money Factor: Converting to APR
Understanding the Dealer's Favorite Obfuscation
- The Conversion Formula:APR = Money Factor ร 2400
Example: Money factor 0.00125 ร 2400 = 3.0% APR (excellent). Money factor 0.00375 ร 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)โnegotiate 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 dealsโbut only on specific models the manufacturer needs to sell.
The money factor is simply the interest rate divided by 2400. Dealers use this format because small decimals seem insignificant. Always convert to APR for meaningful comparison.
Residual Value: The Hidden Lever
How Residual Value Determines Your Payment
- How Residual Is Set:Residual = MSRP ร Residual Percentage. A 60% residual on $50,000 MSRP = $30,000 residual value. You pay for $20,000 of depreciation over the lease term. Higher residual % = lower payment.
- Why Some Cars Lease Better:Trucks, SUVs, and luxury vehicles often have 55-65% residuals. Economy cars might have 45-55% residuals (they depreciate faster). A $30,000 economy car with 50% residual costs more to lease than a $35,000 SUV with 62% residual.
- Inflated Residuals (Subvented Leases):Manufacturers sometimes set artificially high residuals to create attractive lease payments. This is a genuine discountโyou're paying for less depreciation than will actually occur. Look for these deals at model year end or on slow-selling inventory.
- Lease-End Residual Arbitrage:At lease end, compare your residual (buyout price) to actual market value. If your residual is $20,000 but the car is worth $24,000, you have $4,000 in equity. Buy it and keep it, or sell it to a dealer like CarMax/Carvana for instant profit. If market value is below residual, walk away.
Residual value is the most important number you can't negotiate. It's set by the leasing company based on predicted depreciation. Understanding it reveals why some cars lease better than others.
Lease vs. Buy: Total Cost Comparison
Understanding the True Cost of Continuous Leasing
- The 10-Year Comparison:Leasing: 3 leases ร $400/month ร 36 months = $43,200 + fees, with $0 asset value. Buying: $500/month ร 60 months = $30,000, then $0/month for 5 years (just maintenance), with ~$8,000 residual trade-in value. Net buying cost: ~$22,000. Leasing costs nearly double.
- When Leasing Makes Financial Sense:Business use with tax deduction (Section 179 or actual expense method). High-mileage professions where you need reliable warranty coverage. Genuine preference for new technology every 3 years. Income volatilityโleases are easier to exit than loans.
- When Buying Wins:You keep cars 5+ years. You drive 15,000+ miles annually (lease mileage limits hurt). You want to modify the vehicle. You hate perpetual paymentsโowning a paid-off car is financially liberating.
- The Hybrid Strategy:Lease a car for 3 years to test the model. If you love it, buy it out at residual (especially if market value > residual). Keep it for 5+ more years. You get the best of both: new car enjoyment early, then long-term ownership savings.
Leasing appears cheaper monthly but is almost never cheaper long-term. The real comparison is total cost of mobility over 10+ years.
FAQ
? What is the money factor and how do I convert it to APR?
Money factor is the lease interest rate expressed as a small decimal. To convert: Money Factor ร 2400 = APR. Example: 0.0031 ร 2400 = 7.44% APR. Dealers use this format because "0.0031" sounds insignificant compared to "7.44%." Always demand the money factor in writing and calculate the true APR before signing.
? How is a car lease payment calculated?
Lease payment = Depreciation + Rent Charge + Tax. Depreciation = (Capitalized Cost - Residual Value) รท Term. Rent Charge = (Cap Cost + Residual) ร Money Factor. Example: $42,000 cap cost, $27,000 residual, 36 months, 0.0031 MF = $417 depreciation + $214 rent = $631 + tax.
? Is it better to lease or buy a car?
Lease if: you want a new car every 2-3 years, prefer lower monthly payments, drive under 12,000 miles/year, or need business tax deductions. Buy if: you keep cars 5+ years, drive high miles, want to build equity, or hate payment permanence. Buying and holding 10 years is typically 40% cheaper total cost than serial leasing.
? Should I put money down on a lease?
Generally no. If you put $3,000 down and the car is totaled in month 1, you lose that moneyโGAP insurance covers the lender, not your down payment. A $0 down lease protects you from total loss. Exception: if putting money down gets you below a credit tier threshold for better rates.
? What happens if I exceed my mileage limit?
Overage fees are typically $0.15-$0.30 per mile. Going 5,000 miles over at $0.25/mile = $1,250 due at lease end. If you know you'll exceed, buy extra miles upfront (usually 50% cheaper than overage rates). Or negotiate a higher mileage lease from the startโ12,000 vs 15,000 miles/year adds roughly $20-30/month.
? What is residual value and why does it matter?
Residual value is the predicted worth at lease end (expressed as % of MSRP). Higher residual = lower payments because you're paying for less depreciation. A 60% residual on $45,000 MSRP = $27,000 residual. You pay for the $18,000 depreciation over the lease term. Luxury brands often inflate residuals to lower payments and move inventory.