Car Lease Calculator

Use our car lease calculator below to calculate the lease payments for a vehicle.

How to Calculate a Lease Payment

Your lease payment will be based on what your leased vehicle will be worth at the end of the lease, which is known as its residual value. Some factors that go into this calculation are the cost of the vehicle, how many miles you plan to drive it, the size of your down payment (if you make one), the money factor (which is comparable to the interest rate), and its manufacturer-estimated rate of depreciation during the lease term.

There are a few steps involved in calculating a car lease payment, which we’ll cover below. But first, let’s cover what a lease is.

What is an Auto Lease and How is it Different From a Loan?

Leasing is a way to drive a vehicle without actually owning it. Leasing is a great alternative to purchasing. Why? It helps you to avoid many of the negative aspects of buying a vehicle, whether you would finance it over time or pay in full upfront with a cash payment.

Leasing Is Similar To Renting

Leasing a vehicle is generally similar to renting one, except that a lease usually lasts for a much longer term than a typical vacation or business car rental. What they both have in common is that you are paying for the use of the vehicle, and not for the vehicle itself.

By separating these two parts of the vehicle ownership equation, you are only responsible for the part of the vehicle that you use, which also includes depreciation over the term of the lease. The leasing company owns the vehicle for the entire duration of the lease, just as the rental company owns your rental car.

Buying is Similar To Purchasing A Home

Purchasing a vehicle is similar to a home purchase, in that you are buying the entire vehicle and you will be the owner of it. You have the right to sell it at any time. You are also responsible for any repairs that are needed after the warranty expires. If you take out an auto loan, then the monthly payment is often higher than for a lease, but you will own the vehicle when all of the payments have been made.

Vehicle Lease Terminology

There are several terms we will use when explaining how car leases work. Let’s define them first to make things clearer. Some of these terms are found as inputs in the calculator above.

• Capitalized Cost (Cap Cost) – This is the value of the vehicle that the leasing contract is based on. It consists of the Vehicle Price you have negotiated, less any cap cost Reductions, plus any added fees and charges that will not be paid upfront at signing. The lower your cap cost, the lower your monthly lease payment.
• Cap Cost Reductions – Trade-in value from another vehicle, any down payment, plus any discounts and incentives that can be used to make the cap cost smaller.
• Trade-in Value – The value of another vehicle that you might trade in as part of the lease, which can be done to reduce the cap cost.
• Down Payment – The amount of money, if any, that is paid at the start of the lease to lower your cap cost.
• Residual Value – This is what the vehicle is expected to be worth at the end of the lease term. If you should decide to purchase the vehicle at the end of the term, this is the price you would pay for it. The residual value is determined by the leasing company, based on the specific model, any optional equipment, the lease term, and the mileage allowance. The residual value is non-negotiable, although it can vary between lenders. It is normally expressed as a percentage of the vehicle’s MSRP. All else being equal, a higher residual value means a lower monthly lease payment.
• Lease Term – The length of the vehicle lease, usually expressed in months. The lease term should never exceed the length of the vehicle’s warranty.
• Money Factor – This is the leasing term for the interest charged on a lease. It is stated as a decimal (such as 0.00225) and is equal to the interest rate divided by 2400. The money factor is directly related to your credit score – the higher your credit score, the lower your money factor, and therefore your monthly lease payment, will be.
• Mileage Allowance – The maximum number of miles that a leased car can be driven in a year without incurring a penalty fee. It can be adjusted to your specific needs. This number should reflect the actual number of miles you expect to drive the vehicle. The lower the mileage allowance, the lower your monthly lease payment will be (as long as you don’t go over it – then it can get very expensive!).
• Depreciation – A vehicle’s loss of value over time. This starts at the moment you purchase the vehicle and continues throughout its lifespan. The difference between the cap cost and the Residual Value is largely due to the vehicle’s depreciation during the Lease Term. This makes Depreciation a major factor in your monthly lease payment.
• Monthly Lease Payment – The amount you must pay each month for your vehicle lease, calculated according to an industry-standard formula.
• Sales Tax – Depending on the regulations in your particular state, the relevant sales tax may either be added to your monthly lease payment or paid as a lump sum at signing. Ask your dealer about how this works in your state, or check with your local DMV.

Steps to Calculate a Lease Payment

The lease payment can be calculated using the five-step process outlined below. As we move through the steps, we’ll use the following parameters:

• Vehicle Price: $30,000
• Residual Value: $10,000
• Trade-in Value: $1,000
• Down Payment: $2,000
• Sales Tax: 7%
• Interest Rate: 4%
• Lease Term: 48 months

Then, we will close this section by comparing the car lease payment and the car loan payment. Learn more about how to calculate a loan payment.

Step One: Calculate the Money Factor

The money factor is used to calculate the lease fee. It is calculated by dividing the interest rate by 2400, as the formula below shows.

Money Factor Formula

money factor = interest rate / 2400

In our example, the interest rate is 4%, but for this calculation we exclude the % so the money factor is 4 / 2400 = 0.0016667.

Since the money factor is dependent on the annual interest rate, the lower the interest rate is, the lower the lease fee and total monthly payment will be. On the other hand, the higher the interest rate, the higher the lease fee and monthly payment.

This demonstrates the importance of maintaining a good credit score. A high credit score will qualify you for a lower interest rate, which will allow you to have a lower monthly payment.

And if you are able to obtain financing at a lower interest rate from a different financial lender, you can use it as leverage to negotiate the same interest rate between lenders.

Step Two: Calculate the Monthly Depreciation

The monthly depreciation is found by subtracting the residual value from the vehicle price and then dividing by the number of months for the lease term. The formula below outlines this calculation.

Depreciation Formula

depreciation = capitalized cost – residual value / # months

This is essentially how much the car loses value on average per month. The monthly depreciation compensates the financial lender for the loss of value in the vehicle.

The capitalized cost is found by subtracting the trade-in value and down payment from the vehicle price.

For our example, the capitalized cost is $30,000 – $1,000 – $2,000 = $27,000. Therefore, the monthly depreciation is found in the steps below.

depreciation = $27,000 – $10,000 / 48
depreciation = $17,000 / 48
depreciation = $354.17

Each month, on average, the car loses about $354 in value. This won’t be the exact value for each month because the loss in value will probably be higher than $354 per month at the beginning of the lease, and then gradually decrease and eventually be less than $354 per month in value lost per month by the end of the lease.

This fee can be reduced by making a higher down payment at the start. By doing this, the capitalized cost is lower, and the depreciation fee will therefore be lower. This can also be obtained by negotiating a lower vehicle price or higher trade-in value.

Step Three: Calculate the Monthly Financing Fees

The third step is to calculate the monthly financing fees. To do this, you add the capitalized cost and residual value together and then multiply the sum by the money factor.

We calculated the capitalized cost of $27,000 in the second step and the money factor of 0.00167 in the first step. See the financing fees formula here.

Financing fees Formula

financing fees = (capitalized cost + residual value) × money factor

Let’s calculate this fee using the steps below.

financing fees = ($27,000 + $10,000) × 0.0016667
financing fees = $37,000 × 0.0016667
financing fees = $61.67

This is the fee that is affected by the interest rate. The lower the interest rate you can obtain, the lower the financing fees will be. This fee is to compensate the financial lender in case you are unable to make the lease payments each month.

The financing fees can also be lowered with a higher down payment. This lowers the capitalized cost, resulting in a lower fee. Also, a lower payment can be obtained by negotiating a lower vehicle price as well as a higher trade-in value.

Step Four: Calculate the Monthly Taxes

The monthly taxes are calculated by multiplying the sum of the first two fees (depreciation and financing) by the sales tax rate.

Taxes Formula

taxes = (depreciation + fees) × tax rate

In step 2, we calculated the depreciation fee of $354.17. The financing fees of $61.67 were calculated in step 3. The sales tax is assumed to be 7%. We can now plug these into the tax formula.

taxes = ($354.17 + $61.67) × 7%
taxes = $415.84 × 7%
taxes = $29.11

Similar to steps 2 and 3, this part of the payment can be lowered (in most but not all states^[1]) due to a lower vehicle price, a higher down payment, or a higher trade-in value. If one or more of these occur, the depreciation fee, lease fee, and taxes will all be reduced.

Step Five: Calculate the Lease Payment

The monthly lease payment is calculated by the sum of the depreciation fee, lease fee, and taxes. These were all found in steps 2 through 4.

Lease Payment Formula

payment = depreciation + fees + taxes

Now that we have calculated all 3, we can plug them into the lease payment formula.

payment = $354.17 + $61.67 + $29.11
payment = $444.95

Note that due to rounding, the calculator may give an answer that is $0.01 different from what was calculated manually.

Now that we have our monthly lease payment, let’s see what would happen if we were able to change either the vehicle price, trade-in value, or down payment by $1,000.

The vehicle price would be decreased by $1,000, whereas the trade-in value and down payment would be increased by $1,000.

By doing any one of these, the monthly payment would fall to $420.87. This would save $24.07 per month from the prior example. If the lease is kept for the full 48 months, this would lead to total savings of $1,155.36, or net savings of $155.36.

The Pros and Cons of Leasing vs. Buying – An Example

Let’s make an apples-to-apples comparison of a leasing transaction compared to one in which you get a loan to purchase the exact same vehicle. This starts by comparing what the payment would be with the lease versus what the payment would be on the loan. As we will explain, there are other factors to consider.

We will use our loan calculator to calculate the monthly loan payment. We will use the same inputs when calculating the loan payment:

• Vehicle Price: $30,000
• Warranty Price: $0
• Sales Tax: 7%
• Trade-In Value: $1,000
• Down Payment: $2,000
• Interest Rate: 4%
• Loan Term: 48 months

The monthly payment on the loan is $657.05. This is more than $200 above the lease payment. There are several reasons for this.

First, after the loan is paid off, the vehicle is completely yours. This is because you have been making payments on the entire vehicle, not just on the part you used, as typically applies to a lease. If you were to sell the vehicle for more than you paid for it, you would keep the profit. But keep in mind that you paid an extra $10,180.80 ($212.10 more per month x 48 months) for the privilege of owning it.

Second, this means that you own the vehicle with no further loan payments due. While that sounds like a good thing, remember that the vehicle is also likely out of warranty, so you will be on the hook for any upcoming repairs as it ages. Depending on how the vehicle’s future reliability turns out, it may or may not be worth the extra $10,000 you paid for the privilege of owning it.

You can use the same process to calculate and compare loans for an RV or motorcycle.

Lease vs. Buy: Which is Better for You?

Deciding whether to lease or buy a car is up to the individual’s preference. Some people prefer buying a car and owning it after it is paid off, while others prefer to get a new car every few years.

Let’s look at the pros and cons of leasing and buying a car.

Lease Pros

Some of these benefits are economic, while others are more personal. Here are some reasons why leasing might make sense for you:

• Leasing a car lowers your monthly payment
• You’ll always have a car that’s under warranty
• You can lease a nicer car than you might be able to purchase
• You can tailor the lease to your usage pattern
• You won’t find yourself underwater with a long-term loan
• You might not need a down payment
• You often have a newer vehicle

Lease Cons

There are a handful of drawbacks to leasing; we’ve covered some of them below:

• You will always have a car payment
• Your insurance rates may be higher
• You must repair most damage and wear at the end of the lease
• You must pay for excess mileage
• Early lease returns incur hefty fees
• You may need a good credit score