How Is An Auto Lease Calculated

If you decide to lease a car, it is important to know how much an auto lease costs. Many people choose to lease cars because monthly lease payments tend to be lower than buying the car and paying monthly auto loan amounts for the duration of the loan term. It is crucial to know if you can afford to pay monthly car lease payments before signing the car lease agreement. 

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It is helpful to use an auto lease calculator to estimate the cost of your car lease. In order to calculate the monthly lease payments, most monthly payment calculators will ask you for many different values of the car that you want to lease. 

Some of these values are listed below: 

  • MSRP: MSRP stands for “Manufacturer’s Suggested Retail Price.” This is the price for the car that is suggested by the automakers. Many people refer to this price as the “sticker price” or “list price.”  
  • lease term: Lease term is the specific amount of time that the lease is active 
  • negotiated price: The negotiated price is the purchase price of the car that is agreed upon by the leaser and the leasing company. 
  • down payment: The down payment is the initial payment that must be paid up-front. 
  • sales tax: Sales tax is a tax that must be paid for any sales. The sales tax rate depends on the state in which you live in. 
  • new car lending rate: This is a rate that you can find from your leasing company
  • car’s value after the term ends: The value of a car depreciates after wear and use. The value of the car at the end of the lease term is also known as the residual value. 

The calculator will approximate many of the different values for the car. These values are also listed below: 

  • capitalized cost: The capitalized cost is the number that is financed with the car lease. This is usually just the cost of the car. 
  • lease price: This is the price of the lease. An auto lease calculator will normally be able to approximate this amount.
  • residual value: The residual value of the car is the amount of money that your car will be worth at the end of the lease term. 
    • The residual value is calculated by multiplying the MSRP and the residual percentage. The residual percentage is a value that the dealer will give you for the car that you want to lease.  Every car’s residual percentage is different so be sure to ask for the specific residual percentage for the car that you are interested in leasing. 
  • monthly lease payments: The monthly lease payment is the amount of money that you need to pay every month for the car lease. The monthly payment is the total sum of many different costs such as tax, depreciation amount, and interest. 

Check out Swapalease’s auto lease calculator to help with your calculations. 

If you want to calculate your monthly lease payment manually, you can calculate it by adding together the vehicle’s depreciation amount, interest payment, and tax. 

The depreciation value is the amount of the value that the car has lost during the term of the lease. The depreciation cost is calculated by subtracting the residual cost from the capitalized cost and dividing that product by the term of the lease. The residual cost is the amount of value that the car has at the end of the lease term. Most lease terms are around 36 months, but this will depend on the vehicle, leasing company, and lease that you choose. The capitalized cost is the selling price of the car. It is also the cost of the car after taking out any down payment or trade-in allowance. The term of the lease is the length that the lease is active. 

Depreciation value = (capitalized cost – residual cost) / Term of lease

The depreciation value will be the bulk of the cost of your monthly lease payment. 

After calculating the depreciation value, you will need to calculate the monthly interest payment. The monthly interest payment is how the leasing company makes its revenue within leasing cars. If the interest payment is not accounted for, then the leasing companies would just be breaking even with revenue in buying and leasing cars. With the interest payment, leasing companies are able to earn an income. The interest payment amount is calculated by taking the sum of the capitalized cost and the residual value and multiplying that sum with the money factor. The money factor is the finance charge that is normally a fraction or a decimal number. Depending on the leasing company, the money factor will vary. 

monthly interest payment = (capitalized cost + residual value) x money factor 

The money factor can also be used to calculate the interest rate. You just need to multiply the money factor by 2,400. This will give you the interest rate. If you only have the interest rate and need to find the money factor, you can simply divide the interest rate by 2,400. 

Lastly, taxes are also a part of the monthly lease payment. Taxes are calculated by adding together the monthly depreciation cost and interest, then taking this sum and multiplying it by the local sales tax rate. 

taxes = (monthly depreciation amount + interest payment) x local sales tax rate

Once you calculate the monthly depreciation amount, interest payment, and the tax amount, you can add all three of these together. This will give you the monthly lease payment.

monthly lease payment = depreciation value + monthly interest payment + taxes

This is how to calculate an auto lease manually. 

Be aware that there could be other fees included that will factor into the total amount of money that you will spend in leasing a car as well. These other fees include the cost of registration, taxes on the down payment, documentation fees, acquisition fees, lease rebates. If you return the car once the lease term ends, you might need to pay extra fees for any excess mileage or excess wear and use. 

It is very important to know the price of the monthly lease payments before signing the lease agreement to evaluate whether you can afford the car lease. There could be some serious consequences if you are unable to pay the monthly payments. Failure to pay the monthly car lease payments could result in a bad credit score with your bank or credit card company. Before signing the lease agreement, it is important to know if you can ensure to pay the monthly payments. If you decide to return the car early before the end of the lease term because you cannot pay the monthly payments, the process of getting out of a car lease early can also be very expensive and complicated.