Lease Payment Formula

car lease payment formulaCar dealers use a standard math formula to calculate monthly car lease payments. It’s a formula that is used throughout the industry.

The formula has two major parts. One is the part of each payment that pays for the leased car’s depreciation in value over the life of the lease.  The second is the part that is finance charge, since leasing is a form of borrowing, like a loan.

In most states there is also a monthly sales tax on the lease payment.

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Lease Formula – Explained

Here’s the formula:

Lease Payment = Depreciation Charge + Finance Charge

where

Depreciation Charge =  (Cap Cost – Residual) ÷ Term

and

Finance Charge = (Cap Cost + Residual) x Money Factor

Example

Let’s look at an example of the lease payment formula.

Here are the numbers we’ll use in the example:

Cap Cost = $25,000 ( negotiated price of car plus any added fees minus any down payment

Residual = $13,000 (predicted vehicle resale value at lease-end)

Term = 36 (months)

Money Factor = .0009 (lease finance rate)

Now let’s do the calculations:

Depreciation Charge = ($25000 – $13000) ÷ 36 = $333.33

Finance Charge = ($25000 + $13000) x .0009 = $34.20

Then

Monthly Payment = $333.33 + $34.20 = $367.53

In most states, you would also pay sales tax on your lease payment. For example, if your local tax rate is 6%, you add $22.05 to the above payment each month.

For a complete list of current special lease deals see
Best New Car Lease Deals

Now that you understand how the formula works, it might be easier to use our Lease Payment Calculator that uses this same formula.