Auto Lease Calculator

How Auto Leases are Structured

Car leasing allows you to drive a new vehicle for a set period (usually 2 to 4 years) in exchange for a down payment and monthly lease payments. It is similar to a long-term rental. The key difference between a lease and a loan is that with a lease, you only pay for the vehicle's depreciation during the lease term, rather than the entire purchase price.

The Key Components of an Auto Lease

• Auto Price (Capitalized Cost): The selling price of the car. This can often be negotiated down from the MSRP, which reduces your monthly payments.
• Residual Value: The estimated value of the vehicle at the end of the lease term. This is determined by the leasing company and is usually expressed as a percentage of the original MSRP.
• Lease Term: The duration of the lease contract, typically in months (e.g., 24, 36, or 48 months).
• Money Factor: The financing fee charged by the leasing company, equivalent to the interest rate on a loan. You can convert a Money Factor to an equivalent annual interest rate by multiplying it by 2,400.

Auto Lease Formulas

Your base monthly lease payment consists of two parts:

• $$\text{Monthly Depreciation} = \frac{\text{Capitalized Cost} - \text{Residual Value}}{\text{Lease Term}}$$
• $$\text{Monthly Finance Fee} = (\text{Capitalized Cost} + \text{Residual Value}) \times \text{Money Factor}$$
• $$\text{Base Monthly Payment} = \text{Monthly Depreciation} + \text{Monthly Finance Fee}$$
• $$\text{Total Monthly Payment} = \text{Base Monthly Payment} \times (1 + \text{Sales Tax Rate})$$

Reverse Lease Calculation (Auto Price)

If you have a target monthly payment, the maximum capitalized cost can be calculated as follows:

$$\text{Capitalized Cost} = \frac{\text{Base Payment} + \frac{\text{Residual Value}}{\text{Term}} - \text{Residual Value} \times \text{Money Factor}}{\frac{1}{\text{Term}} + \text{Money Factor}}$$

The corresponding auto price is:

$$\text{Auto Price} = \text{Capitalized Cost} + \text{Down Payment} + \text{Trade-In Value}$$

Before you decide on a lease, compare your options with the Auto Loan Calculator to see the difference between leasing and financing. You can also check how much car you can afford with the Car Affordability Calculator, or estimate your fuel costs with the Gas Mileage Calculator to factor in ongoing expenses.