Car lease calculator

How a lease payment is built

A lease payment has two parts: depreciation, which is the capitalized cost minus the residual value spread over the term, and a rent charge, which is interest. The rent charge uses the money factor, which equals the APR divided by 2,400. Sales tax is then added, though how it applies differs by state.

You are paying for the part of the car you use, not the whole car, which is why lease payments are lower than loan payments on the same vehicle.

The numbers to negotiate

Negotiate the capitalized cost like a purchase price, not the monthly payment. Ask for the money factor and the residual value in writing, and check the acquisition fee, disposition fee and mileage allowance. Excess-mileage charges commonly run 15 to 30 cents a mile, so choose a mileage cap that matches how you drive.

A larger down payment lowers the monthly payment but is lost if the car is totaled early, so many advisers suggest minimizing the cap cost reduction.

What changes the lease payment

On a $33,000 car (MSRP $35,000) the base payment is $441.87: $286.11 of depreciation, $130.75 of rent charge and $25.01 of tax. The residual value does the most work. Moving it from 60% to 65% of MSRP lowers the payment by $46.89.

Lease or buy: the total-cost view

Over 36 months this lease costs $18,407 including the down payment, about $511.31 a month, and you return the car. Financing the same $33,000 car over 36 months at 6% would cost $927.87 a month, but you would own a car worth roughly $21,000 at the end.