Car Lease Calculator

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

How to Calculate a Lease Payment

There are several steps involved to calculate a car lease payment, but first, let’s cover what a lease is.

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

A car lease is simply renting a car from a car dealer for a certain number of years. You don’t own the car and will make payments on it throughout the term of the lease.

On the other hand, a car loan is when you take out a loan to purchase a car. You own the car. You will initially make payments to the financial lender, but eventually, the loan is paid off and you no longer have a car payment.

When shopping for a car loan, make sure to compare the APRs that the lenders give you, instead of just the interest rates. The APR represents the true cost of borrowing, since it includes fees that a lender will charge you.

Learn how this is calculated with our APR calculator.

Deciding whether to have a car lease or a car loan is very similar to your housing decision. Renting an apartment is similar to leasing a car, in that you don’t own the apartment and will make rental payments each month you are there.

Buying a home with a mortgage is similar to having a car loan. You own the home and could get to the point where the mortgage is paid off and there are no more mortgage payments.

There are pros and cons for both the car lease and car loan, and the final decision will ultimately be up to the individual as to what is best for them.

Vehicle Lease Terminology

There are several terms we will use throughout regarding car leases. Let’s define them first to make things clearer. These terms are found as inputs in the calculator above.

• Vehicle Price – This is what the vehicle is worth. If you were purchasing the car in cash, this is how much you would pay.
• Residual Value – This is what the car is projected to be worth at the end of the lease term. The dealer has decided that if the car is returned in good condition, then they could sell it for this amount. Or, if you decide to purchase the car at the end of the lease term, this is what you would pay for it.
• Trade-in Value – If, once the car has been returned to the dealer, the car is worth more than the residual value, there is positive equity in the car. This is known as the trade-in value. You would be able to use this equity to purchase a new car.
• Down Payment – The amount of money, if any, that is paid to the dealer at the start of the lease.
• Lease Term – The length of the car lease in months.

Some additional lease terms that are not used as inputs in the Car Lease Calculator are shown below.

• Money Factor – The interest rate divided by 2400. This will be discussed further in Step One in the following section.
• Depreciation – When the value of the car goes down over time. The car dealer needs to be compensated for the value of their car as it depreciates, and they do this by charging a depreciation fee.
• Mileage Allowance – The maximum number of miles that a leased car can be driven in a year, typically 12,000.

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 in 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 taxes 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 due to a lower vehicle price, a higher down payment, or a higher trade-in value. If any one of these occur, the depreciation fee, lease fee, and taxes will all be lowered.

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.

Example

Now let’s compare what the payment would be with a lease versus what the payment would be on a loan.

We will use an auto loan calculator to calculate the monthly auto 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 car is completely yours. If you were to sell it, you would keep the profit. You can’t sell a leased car.

Second, once the car is paid off, you no longer have to make loan payments on the car. With a lease, you will always be making monthly payments on the car.

Some people would be willing to pay more per month at the start in order to either sell it and keep the profit or to have no payments on the back end. It is entirely up to the individual and their preference.

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

Lease vs. Buy: Which is Better?

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

There are several pros to leasing a car. First, as we saw in the example, the monthly payment will be much lower. In our example, it was over $200 lower compared to buying the car. Also, you don’t have to worry about paying for maintenance. The dealer will typically offer a 3-year warranty. Finally, you could get a new car every time the lease is over.

Lease Cons

There are a handful of drawbacks to leasing. The first drawback is that if you always lease a car, you will always be making payments on your vehicle. Also, you won’t be able to build equity in the car and sell it for a profit.

The pros and cons of owning the vehicle with a car loan are just the opposite as those with leasing the car.

Loan Pros

The first pro of getting a car with a loan is that you own it and therefore are able to sell it one day. Also, once you pay off the car, you won’t have to make monthly payments to a lender. New cars will also come with a warranty that will leave you covered for a number of years.

Loan Cons

The first con is that you will be paying a higher monthly payment until the car is paid off. Also, to get your money’s worth, you will probably have to keep the same car much longer than you would with a leased car.

The difference basically comes down to how long you plan on driving the same vehicle. If you are the type of person who wants a new car every couple of years, then a lease will be your best choice.

If you like to get familiar with one car and drive it for a long time, then plan on purchasing a car with a loan.