Car 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.

### 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.