Estimate your monthly car lease payments with our comprehensive Car Lease Calculator. This easy-to-use tool helps you understand the costs associated with leasing a vehicle by breaking down the numbers.

Simply enter the vehicle’s MSRP, your negotiated price, the residual value, lease term, and money factor to get a detailed estimate of your monthly payment, the amount due at signing, and the total cost of the lease. Make an informed decision before heading to the dealership

How to Calculate a Car Lease

To calculate a car lease payment, you must determine and sum its three primary components: the monthly depreciation fee, the monthly finance fee, and the monthly sales tax.

The depreciation fee is calculated from the difference between the vehicle’s negotiated price (capitalized cost) and its projected worth at the end of the lease (residual value), divided by the number of months in the term. The finance fee is found by adding the capitalized cost and the residual value, then multiplying by a small decimal called the money factor.

Finally, sales tax is applied to the sum of the depreciation and finance fees. The combination of these three figures constitutes the total monthly lease payment.

The Core Components of a Car Lease Payment

A car lease payment is not an arbitrary figure set by a dealer; it is a structured calculation based on the vehicle’s loss in value and the cost of borrowing money to finance it. Understanding how to calculate car lease payments requires breaking them down into these fundamental parts.

The Depreciation Fee

The largest portion of a lease payment is the depreciation fee. This represents the amount of value the vehicle is expected to lose during the time you are leasing it. To calculate this, you need two key figures.

The first is the Capitalized Cost, often called the “cap cost,” which is the negotiated price of the vehicle, including any fees. The second is the Residual Value, which is the leasing company’s forecast of the car’s value at the end of the lease term. The total depreciation is simply the difference between these two.

The formula for the monthly depreciation fee is:

Monthly Depreciation Fee = (Capitalized Cost – Residual Value) / Lease Term in Months

The Finance Fee

The finance fee, also known as the rent charge, is the interest you pay to the leasing company for using their asset (the vehicle) for the duration of the lease. This is calculated using a figure called the money factor. The money factor is a small decimal that represents the interest rate. To convert a money factor to a more familiar Annual Percentage Rate (APR), you multiply it by 2400.

The formula for the monthly finance fee is:

Monthly Finance Fee = (Capitalized Cost + Residual Value) × Money Factor

Sales Tax

In most jurisdictions, sales tax is applied to car lease payments. This tax is not typically paid on the full value of the car but is instead calculated on the monthly payment itself. The tax is levied on the sum of the monthly depreciation and finance fees.

The formula for the monthly sales tax is:

Monthly Sales Tax = (Monthly Depreciation Fee + Monthly Finance Fee) × Sales Tax Rate

Putting It All Together: The Full Calculation

Once each of the three components has been calculated, they are summed to arrive at the total monthly lease payment.

Step-by-Step Calculation Example

Let’s assume the following figures for a new vehicle lease:

• Negotiated Price (Capitalized Cost): $33,000
• Residual Value: 60% of MSRP ($35,000), which is $21,000
• Lease Term: 36 months
• Money Factor: 0.0025
• Local Sales Tax Rate: 7% (or 0.07)

1. Calculate the Monthly Depreciation Fee.

• ($33,000 – $21,000) / 36 = $12,000 / 36 = $333.33

2. Calculate the Monthly Finance Fee.

• ($33,000 + $21,000) × 0.0025 = $54,000 × 0.0025 = $135.00

3. Calculate the Monthly Sales Tax.

• ($333.33 + $135.00) × 0.07 = $468.33 × 0.07 ≈ $32.78

4. Calculate the Total Monthly Payment.

• $333.33 + $135.00 + $32.78 = $501.11

The estimated total monthly payment for this lease would be $501.11.

Other Important Costs to Consider

The monthly payment is the primary figure, but it is not the only cost involved in a lease. You must also account for upfront costs and the total cost over the lease’s lifetime.

• Due at Signing: This is the total amount of cash required to initiate the lease. It typically includes your first month’s payment, any down payment (also called a cap cost reduction), an acquisition fee from the bank, and any dealer or state registration fees.
• Total Lease Cost: This is the complete out-of-pocket expense for the entire lease. It is calculated by multiplying the monthly payment by the number of months in the term and adding any down payment and other fees paid at signing.

Frequently Asked Questions

What is a good money factor?

A good money factor is a low one. It is directly tied to interest rates and a borrower’s credit score. A “Tier 1” credit score (typically above 720) will qualify for the lowest, or “buy rate,” money factor offered by the manufacturer. A money factor of 0.0025 is equivalent to a 6% APR (0.0025 x 2400).

How is the residual value determined?

The residual value is set by the leasing company or bank (e.g., Ally, Toyota Financial Services) based on historical data and future value projections for that specific model. It is not typically negotiable.

Can I negotiate the capitalized cost on a lease?

Yes, absolutely. The capitalized cost is essentially the selling price of the car, and you should negotiate it just as you would if you were purchasing the vehicle outright. A lower capitalized cost directly reduces the amount of depreciation you have to pay, lowering your monthly payment.

What is the difference between a down payment and an amount due at signing?

A down payment (or cap cost reduction) is an optional, variable amount of money you can pay upfront to lower the capitalized cost, thereby reducing your monthly payment. The amount due at signing is the total cash required to drive off the lot, which includes the first month’s payment, various fees, and any down payment you choose to make.

Why is the depreciation fee the largest part of the payment?

The depreciation fee is based on the vehicle’s loss of value, which is most significant in the first few years of its life. Since a lease covers this period of high depreciation, the cost to cover that loss naturally forms the largest part of the payment.

Does a trade-in reduce the lease payment?

Yes. The equity from a trade-in vehicle can be applied as a capitalized cost reduction, which functions identically to a cash down payment.