How a lease payment is calculated
The adjusted capitalized cost is the price plus fees in the lease, minus your down payment and trade-in. The residual is what the leasing company expects the car to be worth at the end, set as a percent of MSRP. Add sales tax to get the monthly payment.
Money factor and APR
Lease rates are often quoted as a money factor, a small decimal. Multiply it by 2,400 to compare it with a loan APR: a money factor of 0.0025 is about 6% APR.
Worked example
A $40,000 MSRP car with a $38,000 price, $650 in fees, $2,000 down, a 58% residual, and a 0.0025 money factor over 36 months has an adjusted cap cost of $36,650 and a residual of $23,200. Depreciation is $373.61 a month and the finance charge is $149.63, so the payment is $523.24 before tax, or $559.86 with 7% tax.
Frequently asked questions
Is a big down payment a good idea on a lease?
It lowers the payment, but if the car is totaled or stolen early, insurance and gap coverage pay the leasing company, and the down payment is usually lost.
Can I negotiate a lease?
Yes. The price, fees, and sometimes the money factor are negotiable. The residual is usually set by the leasing company.
What happens at the end of a lease?
You return the car and pay any excess mileage or wear charges, or you buy it for the residual value listed in your contract.