How this calculator works
A car lease is not a loan. You pay for the value the car loses while you use it, plus interest on the money tied up in it. The net capitalized cost is the negotiated price, less any down payment, trade-in credit and rebates, plus dealer and registration fees. The residual value is what the leasing company expects the car to be worth at the end, usually quoted as a percentage of the manufacturer suggested price rather than the negotiated price. The monthly depreciation charge is the net capitalized cost minus the residual, divided by the number of months. The rent charge is interest on the average of the capitalized cost and the residual, calculated with a money factor. The money factor is the APR divided by 2400, so a 5% APR is a money factor of about 0.002083. Sales tax is then added to the payment, though the rules differ by province and state. The model assumes the residual and the money factor you enter, no excess mileage or wear charges, and no purchase option at the end.
Formula
Net capitalized cost = negotiated price - down payment - trade-in - other reductions + dealer fees + registration fees. Residual value = suggested price x residual share. Money factor = APR / 24 when the APR is a decimal, which is the same as APR percent / 2400. Monthly depreciation = (net capitalized cost - residual) / months. Monthly rent = (net capitalized cost + residual) x money factor. Payment before tax = depreciation + rent. Monthly payment = payment before tax x (1 + tax rate). Total cost = down payment + monthly payment x months.
Worked example
A $40,000 suggested price negotiated to $38,000, with a $3,000 down payment, $700 of fees, a 55% residual and a 5% APR over 36 months. The net capitalized cost is $35,700 and the residual is $22,000. Depreciation is $380.56 a month and the rent charge is $120.21, so the payment before tax is $500.76. At 13% tax the payment is $565.86, the total of payments is $20,371.07, and the total cost including the down payment is $23,371.07.
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Frequently asked questions
What is a money factor?
It is the lease equivalent of an interest rate, expressed per month and usually shown as a small decimal. Multiply it by 2400 to get the approximate APR. A money factor of 0.0025 is about 6% a year.
Why is the residual based on the suggested price?
Leasing companies set residuals as a percentage of the manufacturer suggested price, not the price you negotiated. That means a discount lowers your depreciation charge, which is one reason negotiating matters on a lease.
Is a lease cheaper than buying?
It has a lower monthly payment because you pay only for part of the car, but you do not own anything at the end. A lease can cost more over time if you keep cars for many years. Compare the total cost of each route over the same period.
What happens if I go over the mileage limit?
Most leases set an annual mileage allowance and charge for excess kilometres or miles at the end. Wear and tear beyond normal use may also be charged. These costs are not in the payment shown.
Should I put money down on a lease?
A large down payment lowers the monthly payment but is lost if the car is stolen or written off early. Many advisers prefer a small or zero down payment on a lease for that reason.