How this calculator works
A lease charges for the value a vehicle loses during the term plus a finance charge on the money tied up in it. The depreciation part is the price less your down payment and less the residual value, spread over the months. The rent charge uses a money factor, which is the annual rate divided by 24, applied to the average of the adjusted price and the residual. The result is a monthly payment that is usually lower than a loan payment on the same vehicle because you only pay for part of its value. At the end you return the vehicle, and any excess distance or wear charges are extra. Buying the vehicle afterwards requires paying the residual value.
Formula
Residual = price × residual percentage. Money factor = APR / 2400. Depreciation per month = (price - down payment - residual) / months. Rent charge per month = (price - down payment + residual) × money factor. Payment = depreciation + rent charge. Total cost = down payment + payment × months.
Worked example
A $40,000 vehicle with a 55% residual has a residual of $22,000. With $3,000 down over 36 months, depreciation is ($40,000 - $3,000 - $22,000) / 36 = $416.67 a month. At 6.5% the money factor is 0.002708, so the rent charge is ($37,000 + $22,000) × 0.002708 = $159.79. The payment is $576.46, and the lease costs $3,000 + $20,752.50 = $23,752.50 in total.
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Frequently asked questions
Is a lease payment just a loan payment on part of the car?
Not quite. Depreciation is spread evenly rather than amortised, and the rent charge is calculated on the average of the starting and ending values. That is why a lease figure cannot be reproduced with a standard loan formula.
What is a money factor?
It is the financing rate expressed for the lease formula. Multiply the APR by 0.0024 to get the factor used in the rent charge, which is the rate divided by 2400.
Should I put money down on a lease?
A down payment lowers the monthly payment but is lost if the vehicle is written off early, depending on gap coverage. Paying more upfront does not reduce the total cost of depreciation.
What happens at the end of the lease?
You return the vehicle and pay any excess distance, wear or disposition fees, or buy it for the residual value. Those end-of-term amounts are not part of the monthly payment.