How to calculate a lease

According to information provided by Experian in its State of the Automotive Finance Market report, the average cost of leasing a car during the second quarter of 2019 was $458 dollars. This figure is illustrative of rising vehicle prices and payments at the auto loan level. But how exactly does this translate into your next car lease payment? How can you calculate the lease correctly?

For some people, car leasing is something as mysterious as the deepest corners of outer space. Although it may not seem like it to you, calculating the monthly payment of a lease by yourself is extremely easy. And all you need is a calculator, information about offers and a little guidance.

But first, some tips. While you can calculate your own lease, there are easier ways to estimate what your final monthly payment might be.

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Research the market

This is the first thing you should do. Your goal? Find special leasing offers whose amounts best suit your situation. In this regard, we suggest that you check the websites of car manufacturers and dealers to see their leasing offers, which tend to change every month.

Use an online calculator

Another valuable resource you shouldn’t miss is the Auto Leasing Calculator from the specialized website Edmunds. To use it and get an accurate quote, you must enter information about your location and the car. You may also need to include details about the purchase price and local tax rates.

ask your seller

You can also get leasing quotes directly from dealers and lessees you find during your market research. With three or five quotes in hand, you can quickly get an idea of ​​what would be a good deal for you.

Now, if after reviewing all these options you still want to calculate the lease yourself, we will be happy to help you. And because we know that people process information differently, we’ll introduce you to the process and the formula in two different ways. Let us begin!

What can you expect from calculating a lease by yourself?

Calculating your own penny lease payment is unrealistic: Taxes and fees will vary based on where you live, and additional fees may vary from brand to brand. No matter how hard you try, you will almost certainly leave some fees out of the equation. But you can get pretty close.

What you need to calculate a lease by yourself

The selling price of the vehicle

Make sure you get the exact amount of the car you want to rent.

The money factor

This is the “interest rate” you will pay over the life of the lease. It is sometimes called a leasing factor, or even a leasing fee. To get the money factor, call or email a dealership that sells the car you’re interested in, but be as specific as possible about the model, since the monetary factors can vary from one to another. In this vein, “money factors” are a bit different from their Annual Percentage Rate cousins, usually something like this: 0.00125. Take note of this tip: To convert interest rates to monetary factors, divide the interest rate by 2,400. To convert monetary factors to interest rates, multiply the amount by 2,400. So: 0.00125 x 2,400 would equal an interest rate of 3%.

Lease or lease term

First of all, we recommend a term of 36 months or less. However, you may see special offers of 39 months, and even 42. Now, these terms should not be a deciding factor, but if you opt for a lease that lasts longer than 36 months you will end up paying an additional year of registration fees. On the other hand, make sure to check the vehicle warranty. Many “hard-hitting” warranties end at the 36-month mark.

residual value of the car

Ask the dealer for the residual percentage of the car you are considering. The dealer will probably ask you how many months you plan to lease and how many miles you plan to drive per year. These factors affect the residual percentage. As a general guide, most cars have a residual value of between 45% and 60% for a 36-month lease. Again, make sure the residual amount you request is for the exact car package you are leasing.


These are: the Registration, acquisition, down payment tax (if applicable), documentation fees, and the like. If you can’t get an exact figure for the fees you’ll have to pay, ask the dealer for a ballpark estimate.


If you don’t include this factor in your calculations, you could end up with an inaccurate amount. Therefore, we recommend that when contacting dealers you ask them about what discounts, incentives and rebates they offer.

Calculate the leasing of a car: Practical example

For our example, let’s lease a car priced at $23,000. This car will have a residual value of 57% and a money factor of 0.00125. We will have a down payment of $1,700 and the car will have a rebate of $500.

Let’s assume we’ve negotiated a sale price of $21,000 (before the rebate is applied) and will have $1,200 in various fees. For this example, we will not have a swap.

If you just want the formula, skip to the end of this article; but if you want more context, read on.

Calculate a car lease: First step

Take the price of the vehicle and multiply it by its residual percentage to get the residual value

$23,000 x 0.57 = $13,110 Residual value = $13,110

Calculate the leasing of a car: Second step

Take the negotiated sales price and add any fees you have to pay. For our example, we have negotiated a sale price of $21,000 and have $1,200 in fees. Add them up and you get what’s called “gross capitalized cost.”.

$21,000 + $1,200 = $22,200 Gross capitalized cost = $22,200

Calculate the leasing of a car: Third step

Take the total amount of the advance, equity swap, or repayments and add them up. In this example, we have $1,700 in cash and a refund of $500. So our total down payment is $2,200. This is called capitalized cost reduction.

$1,700 + $500 = $2,200 Capitalized Cost Reduction = $2,200

Calculate the leasing of a car: Fourth step

Subtract the capitalized cost reduction of $2,200 from our gross capitalized cost of $22,200. The amount we are left with is called the adjusted capitalized cost..

$22,200 – $2,200 = $20,000 Adjusted Capitalized Cost = $20,000

Calculate a car lease: Fifth step

Subtract the residual from the adjusted capitalized cost. This is the amount of your depreciation, which is the basis of your lease payment.

$20,000 – $13,110 = $6,890 Depreciation amount = $6,890

Calculate a car lease: Sixth step

Divide the amount of depreciation from the fifth step by the months of the lease. In our example, we are using 36 months. The result is our base payment. Don’t get excited about this small number just yet, as we still need to add interest and taxes.

$6,890 / 36 = $191.39 Base Pay = $191.39

Calculate the leasing of a car: Seventh step

Take the adjusted capitalized cost and add it to the residual. Now, multiply that amount by the money factor. The resulting number will be the amount of interest charged per month. This is called the rental charge. This is what it would look like, using our money factor of 0.00125.

($20,000 + $13,110) x 0.00125 = $41.39 Rental charge = $41.39

Calculate a car lease: Eighth step

Now, add the rental charge to the payment you calculated in Step 6 to get the amount of the lease step before taxes.

$191.39 + $41.39 = $232.78 Lease payment before taxes = $232.78

If you’re lucky enough to live in a state that doesn’t charge sales tax, that’s it! If not, you’ll still need to add taxes. Fortunately, this is easy to do. In Santa Monica, California, for example, the sales tax rate is 10.25%. So we have one more step before we finish.

Calculate a car lease: Ninth step

Multiply the payment by the local tax rate to get the total monthly payment.

$232.78 x 1.1025 = $256.64 Total payment = $256.64

Here is the formula again, but without comments

1. Car price $23,000
2. By percentage of residual value x0.57
3. It is equal to the residual value = $13,110
4. Negotiated selling price of the car $21,000
5. Add fees + $1,200
6. Add the results of steps 4 and 5 to get the gross capitalized cost = $22,200
7. Subtract down payment and refunds – $2,200
8. This is the adjusted capitalized cost = $20,000
9. Subtract the salvage value from the adjusted capitalized cost. This is the amount of depreciation.

$20,000 – $13,110

= $6,890
10. Divide the amount of depreciation by the number of months on the lease. This will be the base payment.

$6,890 / 36

= $191.39
11. Add the adjusted capitalized cost and the salvage value. Take the sum and multiply it by the money factor. This is the monthly rental charge.

($20,000 + $13,110) x 0.00125

= $41.39
12. Add the rental charge to the base payment to get the lease amount before taxes.

$191.39 + $41.39

= $232.78
13. Multiply your tax rate by the lease payment before taxes to get the total lease payment.

$232.78 x 1.1025

= $256.64

Frequently asked questions about car leasing

Is it worth renting a car?

Ask yourself the following questions: Is it worth driving a new car every few years? Don’t want to worry about out-of-warranty repairs? Do you want a lower monthly payment? If so, then it may be worth considering leasing. That said, you’ll have to restart the buying process every few years, and you’ll never own the car. You should consider these pros and cons before making a decision.

Is it cheaper to buy or lease a car?

lease a car New is cheaper as a monthly payment, but in the long run, getting a car loan and keeping the vehicle once it’s paid off (this is the key) will be the best financial decision.

How much should you pay to lease a car?

Everyone’s financial circumstances are different, but as a general rule, a lease payment should be no more than 10% of your take-home pay. However, you’ll still need to factor in fuel and insurance costs, which can easily reach (and even exceed) 7% of your take-home pay.

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