Car Lease Calculator
Lease Parameters
Sticker price of the car.
Negotiated price.
Estimated Monthly Payment
Total Lease Cost (Term + Down): $
Understanding Car Leasing
Leasing a car is essentially renting it for a fixed period, typically 24 to 36 months. Unlike buying a car where you pay for the entire value of the vehicle, with a lease, you only pay for the portion of the car's value that you use. This "usage" is measured by Depreciation—the difference between the car's price when new and its value when you return it.
Because you are only financing the depreciation rather than the full price, leasing often results in significantly lower monthly payments than buying the same car with a loan. However, you do not build equity in the vehicle, and you must return it at the end of the term (unless you choose to buy it via the buyout option).
Key Terms in Your Lease
- MSRP (Manufacturer Suggested Retail Price): The sticker price of the car. This acts as the starting point for negotiation, though ideally, you want to negotiate the "Purchase Price" or "Capitalized Cost" well below MSRP.
- Capitalized Cost (Cap Cost): The final negotiated price of the vehicle. A lower Cap Cost means a lower monthly payment. Treat this just like buying a car—negotiate hard!
- Residual Value: The estimated value of the car at the end of the lease term. This is set by the leasing company and is usually non-negotiable. A higher residual value is better for you because it means you are paying for less depreciation.
- Money Factor: This is the interest rate equivalent in leasing. It is usually expressed as a small decimal (e.g., 0.0025). To estimate the annual interest rate (APR), multiply the money factor by 2,400. For example, 0.0025 * 2400 = 6% APR.
- Depreciation Fee: The main part of your monthly payment. It pays off the loss in value of the car over the lease term.
How Is a Lease Payment Calculated?
Our calculator handles the complex math for you, but understanding the formula gives you leverage at the dealership. A lease payment is composed of three parts:
- Depreciation Charge: (Net Cap Cost - Residual Value) ÷ Lease Term
- Finance Charge (Rent Charge): (Net Cap Cost + Residual Value) × Money Factor
- Sales Tax: Most states charge tax on the total monthly payment, not the full price of the car.
Surprisingly, the finance charge is calculated on the sum of the Cap Cost and Residual Value. This is because the leasing company has tied up capital in the entire vehicle value, not just the depreciation amount.
Leasing vs. Buying: Which is Better?
There is no right answer, as it depends on your lifestyle and financial goals.
Pros of Leasing
- Lower monthly payments.
- Drive a new car every 2-3 years.
- Car is usually under warranty for the full term.
- No hassle of selling or trading in later.
Cons of Leasing
- Mileage limits (fees if you exceed them).
- No equity or ownership at the end.
- Difficult and expensive to terminate early.
- Wear and tear charges upon return.
Frequently Asked Questions
What is a good Money Factor?
A Money Factor roughly equivalent to current auto loan interest rates is considered "good." Since Money Factor = APR / 2400, if loan rates are 6%, a Money Factor of 0.0025 is standard. Dealerships may mark this up, so always ask for the "base money factor."
Should I put a down payment on a lease?
Generally, no. If you put $5,000 down and total the car the next day, that money is usually gone. With a lease, Gap Insurance (often included) covers the loss of the vehicle value, but it won't reimburse your down payment. It is safer to pay a higher monthly payment and keep your cash in the bank.
What happens if I go over the mileage limit?
You will be charged a per-mile fee, typically $0.15 to $0.30 per mile. If you expect to drive a lot, negotiate a higher mileage limit upfront (e.g., 15,000 miles/year instead of 10,000). It is cheaper to buy miles upfront than pay the penalty later.