Car Lease Calculator
De-Mystifying Lease Math
When you buy a car with a loan, the math is simple: Price + Interest = Monthly Payment.
When you lease, the math is deliberately complicated. Dealers use jargon like "Money Factor" and "Capitalized Cost" to obscure the true price you are paying. However, a lease is actually just paying for the depreciation of the vehicle while you drive it.
The 3 Pillars of a Lease
To calculate a payment manually, you need three core numbers:
1. Adjusted Capitalized Cost
This is the sale price of the car minus your down payment or trade-in. Think of this as the "Loan Amount." If the dealer sells you a $35,000 car for $33,000, you are financing $33,000.
2. Residual Value
This is the most important number in leasing. It is the estimated value of the car at the end of the lease. It is usually expressed as a percentage of the MSRP (e.g., 55%).
You only pay for the difference between the Sale Price and the Residual Value. If the car holds its value well (like a Toyota or Honda), you pay less depreciation.
3. Money Factor (The Hidden Interest)
Dealers rarely say "APR." They say "Money Factor" (e.g., 0.0025). It looks like a tiny number, but it’s just a disguised interest rate.
To convert Money Factor to APR, simply multiply by 2400.
- Money Factor 0.00125 × 2400 = 3% APR (Good)
- Money Factor 0.00350 × 2400 = 8.4% APR (Bad)
Our calculator allows you to enter the APR (which you understand) and does the conversion for you.
The Lease Formula
Your monthly payment is actually the sum of two parts: Depreciation + Rent Charge.
Wait, why do we add the Residual to calculate rent? It seems counter-intuitive, but this is a mathematical shortcut the industry uses to calculate the average interest on a declining balance.
The "Zero Down" Rule
Most financial experts advise putting $0 Down Payment on a lease.
Why? Because if you drive off the lot and total the car 5 minutes later, the insurance company pays the bank the value of the car (Gap Insurance covers the rest), but you lose your down payment forever.
Instead of putting $3,000 down to lower your monthly payment, keep that $3,000 in a high-yield bank account and use it to subsidize the higher monthly payments yourself. It is mathematically safer.
Lease vs. Buy Checklist
| Feature | Leasing | Buying |
|---|---|---|
| Monthly Cost | Lower | Higher |
| Mileage Limit | Yes (e.g., 12k/yr) | No limit |
| Ownership | You return it | You keep it |
| Warranty | Always covered | Expires eventually |