Car Lease Calculator

How to use this tool

Enter the MSRP, the price you negotiated, and anything that reduces the capitalized cost: cash down, trade in equity and rebates. Add the fees and say whether they are rolled in or paid at signing. The residual and money factor come from the leasing company’s quote; either can also be typed in dollars or as an APR. Then choose the term and how sales tax is charged where you live.

The inputs people most often get wrong are the two lease rates. The residual percentage applies to the MSRP, not the negotiated price: 58% of the $38,000 price instead of the $40,000 MSRP would cut the residual to $22,040 and add $31.38 a month. And a money factor of 0.0025 is not 2.5%; type 2.5 in that box and the calculator asks you to switch it to APR.

What the calculation is doing

A lease payment covers the value the car loses while you drive it, plus a finance charge on the money the leasing company has tied up in it. The calculator follows the payment steps of a US lease disclosure under Regulation M. The gross capitalized cost is the negotiated price plus anything rolled in; subtracting the capitalized cost reduction (cash down, trade in equity and rebates) gives the adjusted capitalized cost.

The depreciation fee is (adjusted capitalized cost − residual value) ÷ months, the same every month. The rent charge is (adjusted capitalized cost + residual value) × money factor. Their sum is the base payment, with sales tax added when it is charged monthly. The first payment is due at signing with the down payment and anything else paid up front.

The comparison buys the same car with the same down payment, trade in and rebates, pays tax on the whole price but no acquisition fee, and borrows the rest at the equivalent APR. Its cost is everything paid out less the residual value.

Why the money factor is the APR ÷ 2,400, and why buying looks cheaper than it is

The balance the leasing company is owed falls in a straight line from the adjusted capitalized cost to the residual, because the depreciation fee never changes. Its average is (adjusted capitalized cost + residual) ÷ 2, and a month of interest on that average is (adjusted capitalized cost + residual) ÷ 2 × APR ÷ 1,200. That is the rent charge formula with a money factor of APR ÷ 2,400. In the default example the average balance is $30,125, and $30,125 × 6% ÷ 12 = $150.63.

It is an approximation. Solved exactly for payments made monthly in advance, the default lease has a true rate of 6.03%, not 6%, and across 24 to 48 month terms, residuals of 45% to 70% and money factors up to 0.0035 the gap stayed within about 0.1 of a point.

The formula also shows that you pay rent on the residual every month, because the leasing company gets that money back only at the end. A buyer at the same rate pays the loan down to zero, so pays less interest: $3,718 against $5,423 of rent. Adding up dollars, buying wins by $1,043. But the buyer pays $615.46 more every month and gets it back only as a car worth $23,200 three years later. In today’s money at the same 6%, the lease costs $20,923 and the purchase $21,673, so leasing is cheaper by $750.

So at the same rate the finance charges largely cancel once timing is allowed for, and what separates the two is tax, fees and the residual. With 7% on the payments the lease pays $1,349 of tax against $2,660 for the purchase. Tax the lease on the full price up front and leasing costs $673 more in today’s money, roughly the acquisition fee. With Ontario’s 13% HST on each payment, leasing is cheaper even in plain dollars, by $297. All of it assumes the car is worth the residual at the end; if it is worth more, the buyer keeps the gain, and so does a lessee who buys it out.

Base payment per $10,000 of MSRP over 36 months

Leased at MSRP with nothing down and no fees, before tax. Multiply by the MSRP in tens of thousands: a $40,000 car at a 58% residual and 0.0025 is 4 × $156.17, about $624.67 a month (the cells are rounded to the cent, so the last cent can differ).

A worked example you can check on paper

The calculator opens with a $40,000 MSRP car at a negotiated $38,000, $2,000 down, a $650 acquisition fee and $400 of other fees rolled in, a 58% residual, a money factor of 0.0025 and 7% tax on each payment for 36 months. Gross capitalized cost = 38,000 + 650 + 400 = $39,050; adjusted capitalized cost = 39,050 − 2,000 = $37,050; residual = 0.58 × 40,000 = $23,200.

Depreciation fee = (37,050 − 23,200) ÷ 36 = 13,850 ÷ 36 = $384.72. Rent charge = (37,050 + 23,200) × 0.0025 = 60,250 × 0.0025 = $150.63. Base payment $535.35, tax $535.35 × 0.07 = $37.47, monthly payment $572.82. Due at signing: $572.82 + $2,000 = $2,572.82. Over the lease: 36 × $572.82 + 2,000 = $22,621.52.

To buy instead: tax is 0.07 × 38,000 = $2,660, and the loan is 38,000 + 2,660 + 400 − 2,000 = $39,060. At 0.005 a month for 36 months the payment is $39,060 × 0.005 ÷ (1 − 1.005 to the power −36) = $1,188.28. The buyer pays 2,000 + 36 × $1,188.28 = $44,778.08 and owns a car worth $23,200, a net $21,578.08, or $1,043.44 less than the lease.

Mistakes that catch people out

Treating the money factor as a percentage. 0.0025 is about 6% APR, not 0.25% or 2.5%. Multiply by 2,400 to compare it with loan rates.

Taking the residual from the price. The residual percentage applies to the MSRP. Using the negotiated price overstates the payment, by $31.38 a month in the example above.

Negotiating the payment instead of the price. The gross capitalized cost is negotiable like a purchase price. Any monthly figure can be hit with more down or a longer term, so compare capitalized costs and money factors.

Putting a lot of money down. $3,000 down on a $40,000 lease at 0.0025 over 36 months cuts the payment from $624.67 to $533.83, but saves only $270 of rent charge. If the car is stolen or written off early, the down payment is usually lost.

Forgetting the costs at the end. A disposition fee, excess wear charges and the mileage charge all come when you hand the car back. Enter your realistic yearly distance before choosing an allowance.

Popular calculations

Each opens the calculator with those figures filled in. Unless shown otherwise: leased at MSRP for 36 months, 58% residual, money factor 0.0025, nothing down, no fees or tax.

Monthly payment by sticker price, 36 months

Residual value on a $40,000 car

Money factor on a $40,000 car

Lease term on a $40,000 car

Sales tax on a $40,000 lease

Down payment on a $40,000 lease

Going over the mileage allowance

Full deals with fees, trade ins and rebates

How this was checked

The engine reproduces the Federal Reserve Board’s vehicle leasing examples. A money factor of .00354 on an $18,800 adjusted capitalized cost and a $12,350 residual gives the Board’s rent charge of $110.27 a month exactly. In its five payment scenarios ($22,300 gross capitalized cost, $3,500 reduction, 24 to 48 months) every depreciation figure matched. They fit a money factor of 8.5 ÷ 2,400 = 0.0035417, which the Board shows as .00354, and at that factor the rent charges came within 50 cents of its whole dollar figures and the base payments within one cent: $244.70 against $244.69, for example.

An independent implementation written from the Regulation M steps, finding the loan payment by a month by month search, was compared with the calculator on 5,891 random leases across every tax and fee setting. Everything agreed to the cent except 15 payments that landed exactly on a half cent and were rounded the other way. Loan payments run month by month cleared the balance to within 30 cents, the effect of rounding each payment to the cent. The ×2,400 rule was compared with the exact rate of a lease paid in advance across 384 combinations, with a largest gap of 0.103 points.

The tax settings follow Consumer Reports, the Federal Reserve Board and the Canada Revenue Agency. Every address above was opened and checked for a distinct title, the right payment and clean exports, at desktop and phone widths.

Common questions

How is a car lease payment calculated?

Add a depreciation fee, (adjusted capitalized cost − residual) ÷ months, to a rent charge, (adjusted capitalized cost + residual) × money factor, then add tax. For $37,050, a $23,200 residual and 0.0025 over 36 months: $384.72 + $150.63 = $535.35, or $572.82 with 7% tax.

How do you convert a money factor to an APR?

Multiply it by 2,400: 0.0025 is about 6% APR and 0.00125 about 3%. It is a convention, not an exact conversion, and the Federal Reserve warns that a money factor cannot be turned into a rate by moving the decimal point. On 24 to 48 month leases the true rate is within about a tenth of a point.

Why does a higher residual value lower the lease payment?

You pay for the value the car loses while you have it, so a higher residual leaves less depreciation to cover, which outweighs the slightly larger rent charge. In the Federal Reserve example of $18,800 over 48 months, a $14,000 residual gives $216.16 a month and a $10,500 residual $276.68.

Is it cheaper to lease or buy a car?

At the same rate it turns on tax, fees and how long you keep the car. In the default example buying costs $1,043 less in plain dollars, net of the car’s value, but leasing costs $750 less in today’s money, because it spends less cash early and pays tax only on the payments. Keeping a bought car long after the loan is paid off usually favours buying.

How is sales tax charged on a car lease?

In most US states it is charged on each monthly payment, and some also tax a cash down payment. A few want it up front, on the capitalized cost or the price, paid at signing or rolled in; the calculator’s up front setting uses the price. In Canada the GST or HST applies to each lease payment, 13% in Ontario.

What happens if I drive more than the lease allows?

You pay an excess mileage charge at turn in, usually 10 to 25 cents a mile according to Consumer Reports; the CFPB says most leases allow 10,000 to 15,000 miles a year. Driving 15,000 a year on a 12,000 mile lease for 36 months is 9,000 miles over: $2,250 at 25 cents.

Related Calculators and Reference

• Auto Loan Calculator: the loan side in full, with negative equity and tax on the price.
• Loan Payment Calculator: the amortization schedule behind the buying comparison, month by month.
• Depreciation Calculator: test whether a residual value is realistic.
• GST and HST Calculator: the Canadian sales tax on each payment or on the price, by province.
• Gas Cost Calculator: the fuel bill that comes with the mileage allowance you choose.
• Federal Reserve Board: More information about the rent charge: the money factor and the worked example reproduced here.