A car lease is a way of obtaining a car that involves only paying for part of the car’s actual cost as opposed to having to pay for the car in its entirety. When you lease a new car you are only paying for the portion of the car you are using over the number of years in your lease agreement.

Lease Payment=Depreciation + Interest + Tax 

Here are some terms you should be familiar with in order to calculate the lease:

• Capitalized Cost – The cost of the vehicle after subtracting any down payment or trade-in allowance.
• Residual – The amount the vehicle is worth at the end of the lease.
• Depreciation – The amount the vehicle has lost in value during the lease.
• Term of Lease – The number of months you will be leasing (usually 24, 36, 39, or 48 months)
• Money Factor – The finance charge, usually expressed as a fraction. (To calculate the interest rate, simply multiply the money factor by 2400)  

Example

Let’s say that the car you want to lease has an MSRP of $32,000 and you managed to negotiate the purchase price down to $30,000. To keep things simple, there is no down payment and you don’t have a trade-in. The lease term is 36 months. The money factor is .0029, and the manufacturer (leasing company) has predicted the residual value to be $16000 at the end of 36 months.

• Capitalized Cost – $30,000
• Residual Value – $16,00
• Money Factor – .0029
• Term – 36 Months

Car sales is extremely competitive so most dealership will give you all the information you need if you just ask.

let’s take a look at how each part of the lease payment is calculated

Depreciation=(Capitalized Cost – Residual) ÷ Term of Lease

Depreciation=($30,000 – $16000) ÷ 36

Your monthly depreciation is $389

Interest=(Capitalized Cost + Residual) × Money Factor

Interest=($30,000 + 16,000) × 0.0029

Your monthly interest is $133.4

In most states, you will need to pay taxes on both the depreciation AND interest payment. Taxes=(Monthly Depreciation Cost + Interest) × Local Sales Tax Rate

Taxes=($389+$133.4) x 7%

Your monthly tax is $36.6

Add it All Together

Now that we have all 3 factors that make up your lease payment, we can add it all together to come up with the final:

$389 + $133.4 + $36.6 = $559 Monthly Lease Payment