Auto Lease Calculator
Considering leasing a car? Enter the vehicle price, lease term, residual value, and money factor to calculate your monthly payment and total lease cost.
How Lease Payments Are Calculated
Auto lease payments have two parts: depreciation and finance charge. Depreciation is the difference between the capitalized cost (negotiated price minus down payment and trade-in) and the residual value, divided by the lease term. This covers the car's loss of value over the lease.
The finance charge is calculated by adding the capitalized cost and residual value, then multiplying by the money factor. This is essentially interest on the average amount you owe during the lease. The two parts combined equal your monthly payment, plus any taxes and fees.
Unlike loan payments, lease payments don't build equity. You're renting the depreciation. At lease end, you return the car or buy it for the residual value. Lower residuals mean higher payments because you're covering more depreciation.
Lease vs. Buy: Which Costs Less?
Leasing typically has lower monthly payments than buying the same car because you only pay for depreciation, not the full price. A $40,000 car with 60% residual over 36 months costs roughly $11,000 in depreciation plus interest, versus financing the full $40,000.
However, leasing never ends. After three years, you have no equity and must lease or buy another car. Financing builds ownership; once the loan is paid, you own the asset. Over 10 years, buying usually costs less because you have payment-free years after payoff.
Leasing makes sense if you drive under the mileage limit (typically 10,000-15,000 miles/year), want a new car every few years, and prefer predictable costs without major repairs. Buying makes sense if you drive a lot, keep cars long-term, or want to build equity.
Understanding Money Factor and Residual Value
The money factor is set by the leasing company (often the manufacturer's financing arm) and reflects your credit score and market rates. Better credit scores qualify for lower money factors, reducing your payment. Money factors rarely budge in negotiation, but you can shop multiple lenders.
Residual value is predetermined by the manufacturer and based on historical depreciation data. Popular, reliable cars hold value better and have higher residuals, which lowers lease payments. Luxury cars with poor resale often have low residuals, making them expensive to lease despite high MSRPs.
Manufacturers sometimes subsidize residuals to boost sales, inflating the residual value artificially to lower payments. This is a hidden incentive. If you plan to buy the car at lease end, a subsidized residual means you pay less than market value, turning the lease into a great deal.
Frequently Asked Questions
What is a money factor in car leasing?
The money factor is the interest rate in decimal form. To convert to APR, multiply by 2,400. For example, a money factor of 0.00125 equals 3% APR (0.00125 × 2,400 = 3). Dealers use money factors because they look smaller and are less intimidating.
What is residual value?
Residual value is the car's estimated worth at lease end, expressed as a percentage of MSRP. A $40,000 car with 60% residual is worth $24,000 after 36 months. You pay depreciation (the difference) plus interest. Higher residual means lower payments.
Should I put money down on a lease?
Conventional wisdom says no. If the car is totaled, insurance pays the leasing company, not you, and your down payment is lost. Instead, make a larger first month's payment or roll everything into monthly payments to preserve cash and avoid gap coverage issues.
What are typical lease terms?
Most leases run 24, 36, or 39 months. Shorter terms mean higher payments but you drive a newer car more often. Longer terms lower monthly costs but increase total interest paid. Match the term to how often you want to upgrade vehicles.
Can I negotiate a lease like a purchase?
Yes. Negotiate the selling price (capitalized cost) just like a purchase. Lower price means less depreciation and lower payments. Also negotiate the trade-in value if applicable. The money factor and residual are usually set by the manufacturer and harder to change.