Car Lease Calculator: Monthly Lease Payment Calculator
Table of Contents - Car Lease
- How to Use This Calculator
- The Core Principle: Depreciation Plus Finance
- How to Calculate Lease Payments Manually
- Real-World Applications
- Scenarios People Actually Run Into
- Trade-Offs and Decisions People Underestimate
- Common Mistakes and How to Recover
- Related Topics
- How This Calculator Works
- FAQs
How to Use This Calculator - Car Lease
Enter the Vehicle Price (MSRP)—the manufacturer's suggested retail price, which serves as the basis for calculating residual value.
Enter your Down Payment—the amount you'll pay upfront to reduce the amount financed.
Enter the Residual Value as a percentage. This represents what the car will be worth at lease end as a percentage of MSRP. Dealers provide this figure; typical ranges are 50-60% for 36-month leases.
Select your Lease Term from the dropdown: common options are 24, 36, 39, or 48 months.
Enter the Interest Rate (APR)—the annual percentage rate that determines your finance charges.
Enter Sales Tax rate as a percentage if applicable.
Optionally, enter Trade-in Value if you're applying a vehicle toward the lease.
Click "Calculate Lease" to see results. The output displays: monthly payment breakdown (depreciation portion, finance charge, tax), total monthly payment, total cost of the lease, and a comparison showing what you'd pay if financing instead.
The Core Principle: Depreciation Plus Finance
Leasing means paying for the vehicle's depreciation during your use period, plus interest charges on the capital tied up in the car. You're not paying off the whole vehicle—just the difference between its value when new and its predicted value when returned.
The two main payment components are:
Depreciation charge: (Capitalized Cost - Residual Value) ÷ Term. This pays for the vehicle's loss in value.
Finance charge: (Capitalized Cost + Residual Value) × Money Factor. This is interest on the lease, calculated differently than a loan.
Money factor is the lease equivalent of interest rate. To convert APR to money factor, divide by 2,400. So 3.6% APR = 0.0015 money factor.
Residual value is crucial—higher residual means lower depreciation, means lower payment. Vehicles that hold value well (Honda, Toyota, Lexus) often lease more favorably than those that depreciate heavily.
How to Calculate Lease Payments Manually
Step 1: Determine capitalized cost
Cap cost = Negotiated price + fees - down payment - trade-in
Example: $35,000 MSRP, negotiated to $33,000, $3,000 down, no trade-in Cap cost = $33,000 - $3,000 = $30,000
Step 2: Calculate residual value
Residual = MSRP × residual percentage
Example: 55% residual on $35,000 MSRP Residual = $35,000 × 0.55 = $19,250
Step 3: Calculate depreciation
Depreciation = Cap cost - Residual Monthly depreciation = Depreciation ÷ Term
Example: 36-month lease Depreciation = $30,000 - $19,250 = $10,750 Monthly depreciation = $10,750 ÷ 36 = $298.61
Step 4: Calculate finance charge
Convert APR to money factor: APR ÷ 2,400
Finance charge = (Cap cost + Residual) × Money factor
Example: 3.6% APR Money factor = 3.6 ÷ 2,400 = 0.0015 Finance charge = ($30,000 + $19,250) × 0.0015 = $73.88
Step 5: Add components
Base payment = Monthly depreciation + Finance charge Base payment = $298.61 + $73.88 = $372.49
Step 6: Add sales tax
Total payment = Base payment × (1 + tax rate)
Example: 8% sales tax Total payment = $372.49 × 1.08 = $402.29
Real-World Applications
Cash flow optimization. Leasing typically offers lower monthly payments than financing the same vehicle. If monthly budget is constrained but you need reliable transportation, leasing fits more car into less cash flow.
Business vehicle expenses. Lease payments are often fully deductible for business use. The tax treatment can make leasing more attractive than owning for business vehicles.
Technology hedging. Automotive technology evolves rapidly—electric vehicles, driver assistance, connectivity. Leasing lets you upgrade every 2-3 years without trading a depreciating asset.
Predictable costs. Leased vehicles are typically under warranty for the entire lease term. Maintenance costs are minimal and predictable, unlike older owned vehicles.
Comparison shopping. Understanding lease math helps compare dealer offers. When you can calculate payments yourself, you can't be misled by payment manipulation that hides unfavorable terms.
Scenarios People Actually Run Into
The low payment trap. A dealer offers $199/month on a $40,000 car. Sounds amazing until you see the $5,000 down payment, 15,000-mile annual limit, and 60-month term. Low payments can hide unfavorable total costs.
The mileage penalty shock. You leased with 10,000 miles/year allowance but drove 15,000 annually. At lease end, you owe $0.25/mile × 15,000 excess miles = $3,750. Always lease with realistic mileage expectations.
The negotiable cap cost. You assumed MSRP was the starting point. Actually, the capitalized cost (effective purchase price) is negotiable just like buying. A lower cap cost means lower monthly payment.
The residual value mystery. You can't negotiate residual value—it's set by the leasing company. But you can shop different lessors; manufacturer captive finance arms often offer higher residuals (lower payments) than banks.
The termination penalty reality. Life changed and you need out of the lease early. Termination fees, remaining payments, and negative equity can make early exit very expensive. Leases aren't easily escaped.
Trade-Offs and Decisions People Underestimate
Lease versus buy total cost. Leasing usually costs more over time than buying and keeping a car long-term. But buying requires larger down payment, and you bear depreciation risk.
Down payment strategy. Larger down payment reduces monthly payment but increases upfront cost. If the car is totaled early, gap insurance covers the loan but you lose your down payment.
Term length trade-offs. Shorter leases mean higher payments but more frequent upgrades. Longer leases reduce payments but tie you to a car longer and accumulate more mileage.
Residual gambling. If residual is set too high, you might owe more than the car's worth at lease end (though you just walk away). If set too low, you're overpaying monthly—but have a buyout option at a good price.
Wear and tear subjectivity. Lease return inspections can find "excessive wear" subjectively. What you consider normal use, the lessor may charge for. Some lessors are stricter than others.
Common Mistakes and How to Recover
Ignoring money factor. A dealer quotes a payment but won't explain the interest rate. Convert their money factor to APR (multiply by 2,400) to see if it's competitive. High money factors mean you're overpaying for financing.
Not negotiating cap cost. The sticker price isn't sacred. Negotiate the vehicle price before discussing lease terms. A $2,000 reduction in cap cost saves $55/month on a 36-month lease.
Underestimating mileage needs. Be realistic about driving patterns. It's cheaper to buy extra miles upfront (typically $0.10-0.15/mile) than to pay excess at return (typically $0.20-0.30/mile).
Ignoring acquisition and disposition fees. These add $500-1,500 to the lease cost. They're usually not negotiable but should be included in total cost comparisons.
Putting too much money down. If the car is totaled, your down payment is gone (insurance pays off the lease, not you). Minimize down payment; use those funds for gap insurance or keep them invested.
Related Topics
Gap insurance. Covers the difference between insurance payout (actual value) and lease payoff if the car is totaled. Essential for leases where payoff often exceeds market value early in term.
Lease buyout. At lease end, you can purchase the vehicle for the residual value. If the car is worth more than residual, buying and selling could profit. If worth less, walk away.
Lease transfer. Services exist to transfer remaining lease obligations to another person. This can help exit a lease without termination penalties, though approval is required.
Money factor markup. Dealers can mark up the money factor, pocketing the difference. Ask for the "buy rate" or check manufacturer websites for advertised lease rates.
Manufacturer incentives. Factory lease deals often include subvented (below-market) money factors and inflated residuals. These promotional offers can make leasing extremely attractive.
How This Calculator Works
The calculator takes vehicle price, down payment, residual value percentage, lease term, interest rate, sales tax, and trade-in value.
Net capitalized cost: Net cap cost = Vehicle price - Down payment - Trade-in
Residual value: Residual = Vehicle price × (Residual percentage ÷ 100)
Depreciation: Total depreciation = Net cap cost - Residual Monthly depreciation = Total depreciation ÷ Term
Money factor: Money factor = (Interest rate ÷ 100) ÷ 24
Finance charge: Monthly finance charge = (Net cap cost + Residual) × Money factor
Base payment: Base payment = Monthly depreciation + Monthly finance charge
Sales tax: Tax amount = Base payment × (Sales tax ÷ 100)
Total payment: Total monthly = Base payment + Tax amount
Total lease cost: Total cost = (Total monthly × Term) + Down payment
Financing comparison: Standard loan payment calculation for same principal, rate, and term
All calculations happen locally in your browser.
FAQs
What's a good residual value percentage?
Higher is better for lower payments. 55-60% after 36 months is strong (typically luxury brands and vehicles that hold value). Below 50% indicates rapid depreciation and likely higher payments.
What money factor should I expect?
Competitive money factors are typically 0.001-0.002 (equivalent to 2.4-4.8% APR). Manufacturer promotions sometimes offer 0.0005 or lower. Above 0.003 suggests markup or poor credit terms.
Should I put money down on a lease?
Minimize down payment. Unlike buying, where down payment reduces interest cost, lease down payment primarily shifts when you pay (upfront versus monthly). If the car is totaled, your down payment is lost.
How many miles should I lease for?
Be realistic. Most standard leases offer 10,000-12,000 miles/year. If you drive more, buy additional miles upfront. Excess mileage charges at lease end are expensive.
Can I negotiate a lease?
Yes—specifically the capitalized cost (price of the car) and money factor (if the dealer marked it up). Residual value is set by the lessor and isn't negotiable.
Is leasing cheaper than buying?
Monthly payments are lower, but you never own anything. Over 10+ years, buying and keeping a car costs less than serial leasing. Leasing makes sense for lower payments, always having new cars, and business deductions.
What happens if I exceed the mileage limit?
You pay per-mile charges at lease return—typically $0.15-0.30/mile. Driving 5,000 miles over on a $0.25 rate costs $1,250.
Can I end a lease early?
Yes, but it's expensive. You typically owe remaining payments, disposition fee, and any negative equity. Lease transfer services or buying out and selling the car may be better options.
What happens at lease end?
You have three options: return the car (pay any excess wear/mileage fees), buy the car at the residual price, or trade it in on a new lease. If the car is worth more than residual, buying and selling can profit you.
What are acquisition and disposition fees?
Acquisition fee (charged at lease start) covers the lessor's administrative costs—typically $500-1,000. Disposition fee (charged at lease end if you return the car) covers inspection and remarketing—typically $300-500. These fees are often not negotiable.
How does a trade-in work with a lease?
Trade-in value is subtracted from the capitalized cost, reducing your monthly payment. If you have positive equity in your trade (worth more than you owe), this reduces your lease cost. Negative equity adds to the cap cost, increasing payments.
What is a money factor and how do I convert it?
Money factor is the lease equivalent of interest rate, expressed as a decimal. To convert APR to money factor, divide by 2,400. To convert money factor to APR, multiply by 2,400. Example: 0.00125 money factor × 2,400 = 3% APR.