What you pay for in a lease
A lease is a long rental. You pay for the loss in value of the car while you drive it, plus a financing charge on the money the lessor has tied up, plus tax. You do not pay for the part of the car’s value that remains at the end, which is the residual value, and that is why monthly payments are normally lower than loan payments for the same car.
The calculator separates the three parts so you can see where the money goes. The depreciation share is usually the largest, and the finance charge is the part you can reduce by negotiating a lower money factor.
A worked example
A 35,000 car with 3,000 down is capitalised at 32,000. With a 60% residual of 21,000, 36 months and 6% APR (money factor 0.0025): depreciation is 11,000 ÷ 36 = 305.56, and the finance charge is (32,000 + 21,000) × 0.0025 = 132.50. That is 438.06 a month before tax. With 7% tax of 30.66 the payment is 468.72, and over 36 months with the down payment you pay 19,939.92 in total.
Getting a better lease
Negotiate the price of the car first, as with a purchase, because it lowers the capitalised cost. Then compare residual values and money factors between dealers. A large down payment lowers the monthly payment but is lost if the car is written off early, so many advisers suggest keeping it small.
Check the mileage allowance and the charges for excess wear and tear. For buying instead, the car loan calculator shows monthly payments, and the fuel cost calculator helps you estimate running costs.
Questions people ask
How is a car lease payment calculated?
The payment has two parts. Depreciation is the part of the car’s value you use: (capitalised cost − residual value) ÷ months. The finance charge (or rent charge) is (capitalised cost + residual value) × money factor. Tax is then added on top. The capitalised cost is the price less your down payment and trade-in.
What is a money factor?
It is the lease version of an interest rate. Multiply it by 2,400 to get the APR, or divide the APR by 2,400 to get the money factor. A money factor of 0.0025 is 6% APR. The calculator shows the money factor under the rate field.
What is a residual value?
It is what the car is expected to be worth at the end of the lease, usually set by the lessor as a percentage of the original price. A higher residual means less depreciation to pay for, so a lower payment. Typical figures run from about 50% to 70% for a three-year lease, but they vary by model.
Is leasing cheaper than buying?
The monthly payment is usually lower because you only pay for the part of the car you use, but you own nothing at the end and there are mileage limits and wear charges. Over many years, buying and keeping a car is usually cheaper. Compare the total of all payments with the car loan calculator.
Does the estimate include fees?
No. Acquisition fees, registration, documentation fees and the end-of-lease disposition fee vary by lender and country, and some are rolled into the capitalised cost. Ask the dealer for a full breakdown. This calculator also taxes the monthly payment, which is common in the US but not universal.