How it works
A lease payment has two pieces plus tax. The depreciation fee pays for the value the car loses while you drive it. The rent charge is the lease’s version of interest.
- Gross capitalized cost = negotiated price + acquisition fee (when it is rolled into the lease).
- Capitalized cost reduction = down payment + trade-in equity + rebates.
- Adjusted capitalized cost = gross cap cost − cap cost reduction.
- Residual value = MSRP × residual %. The bank sets this percentage, and it is based on MSRP, not on the price you negotiated.
Depreciation fee = (adjusted cap cost − residual) ÷ term
Rent charge = (adjusted cap cost + residual) × money factor
Payment = (depreciation + rent) × (1 + sales tax rate)
If you choose tax up front, the payment is just depreciation + rent, and the tax due at signing is the tax rate × (pre-tax payment × term + down payment).
The rent charge adds the cap cost and residual together because, averaged over the lease, you are financing roughly the midpoint between them. Multiplying that sum by the money factor is algebraically the same as charging an annual rate of money factor × 2,400 on the average balance. That is why the calculator shows an APR equivalent of money factor × 2,400. If a dealer quotes an APR instead, choose “APR (%)” and the calculator divides it by 2,400 to get the money factor.
Methodology and what is not included
- Sales tax varies by state. By default it is charged on each monthly payment; the up-front option charges it at signing on the total of payments plus the down payment. Some states instead tax the full price (Texas), or use a different tax entirely (Georgia’s TAVT); in those cases enter 0% and budget the tax separately.
- The acquisition fee is assumed to be capitalized, so it adds to both the depreciation and the rent charge. Paying it at signing instead lowers the payment slightly.
- Total lease cost = all payments + down payment + trade-in equity. Registration, title, the first month due at signing, the disposition fee at turn-in and any excess-mileage or wear charges are not included.
- Results are estimates. Your lessor’s contract, rounding and local fees govern the actual payment.
Worked examples
$40,000 MSRP SUV negotiated to $38,000, 58% residual, money factor 0.00125, 36 months, $2,000 down, $695 acquisition fee, 7% tax
Gross cap cost is $38,695.00 and, after the $2,000 down payment, the adjusted cap cost is $36,695.00. The residual is 58% of $40,000 = $23,200.00. Depreciation is ($36,695.00 − $23,200.00) ÷ 36 = $374.86 a month. The rent charge is ($36,695.00 + $23,200.00) × 0.00125 = $74.87, and the money factor equals a 3.00% APR. Before tax the payment is $449.73; 7% tax adds $31.48 for a payment of $481.21. Over the lease you pay $2,695.28 in rent charges and $19,323.59 in total, including the down payment.
$32,000 MSRP sedan at $30,500, 55% residual, quoted at 4.8% APR, 36 months, no cash down, $3,000 trade-in, $650 fee, 6% tax
An APR of 4.8% converts to a money factor of 4.8 ÷ 2,400 = 0.00200. The trade-in cuts the cap cost to $28,150.00 against a residual of $17,600.00. Depreciation is $293.06, rent is $91.50, and with 6% tax the payment is $407.63. The lease costs $17,674.64 in all, counting the trade-in equity you gave up.
The effect of negotiating: the same SUV at $36,500 instead of $38,000
Knocking $1,500 off the price lowers both fees and drops the payment from $481.21 to $434.62, saving $1,677.22 over 36 months. The residual doesn’t change, because it is set from MSRP.
Lease terms you will see on the contract
- Capitalized cost is the lease’s purchase price. It is negotiable, just like the price of a car you buy.
- Residual value is what the lessor predicts the car will be worth at lease end. A higher residual means less depreciation to pay for and a lower payment.
- Money factor is the finance rate written as a small decimal. The calculator shows its APR equivalent, money factor × 2,400. Dealers may mark it up above the lender’s “buy rate,” so ask what the base money factor is for your credit tier.
- Acquisition fee (also called an administrative, bank or assignment fee) covers the lessor’s set-up costs such as the credit report and paperwork, and is paid up front or added to the cap cost (Federal Reserve leasing FAQ). The disposition fee is charged when you return the car, and is often waived if you lease again with the same brand.
- Mileage allowance is commonly 10,000, 12,000 or 15,000 miles a year. Excess miles are billed at turn-in; the Federal Reserve, Keys to Vehicle Leasing notes these charges can range from 10 to 25 cents a mile or more.
Should you put money down on a lease?
A cap cost reduction lowers the payment dollar for dollar over the term (plus a little rent charge), but it does not reduce the total much. It also carries a risk: if the car is totaled or stolen early in the lease, gap coverage generally pays off the lessor, not your down payment. Many shoppers prefer to keep the amount due at signing small and accept a slightly higher payment. Running the calculator with and without the down payment shows the trade-off clearly.
How to negotiate a better lease
- Negotiate the price first, as if you were buying, before you mention leasing.
- Ask for the money factor and residual in writing and check them here.
- Look for manufacturer lease cash and loyalty or conquest rebates, which reduce the cap cost.
- Pick a mileage allowance that matches how you actually drive; buying miles up front is usually cheaper than paying overage charges.
- Compare the total cost with financing the same car using our lease vs. buy calculator.
Frequently asked questions
How is a car lease payment calculated?
Add the depreciation fee, which is (adjusted cap cost minus residual) divided by the number of months, to the rent charge, which is (adjusted cap cost plus residual) times the money factor. Then add sales tax on that monthly amount.
How do I convert a money factor to an APR?
Multiply the money factor by 2,400. A money factor of 0.00125 equals 3% APR. To go from APR to money factor, divide by 2,400; 4.8% APR is 0.002.
What is a good residual value?
The residual percentage is set by the leasing company for each model, term and mileage allowance, so ask the dealer for it in writing. Vehicles that hold their value lease more cheaply because there is less depreciation to pay for.
Is sales tax charged on the whole car or the payment?
It varies by state. Many states tax each monthly payment; others collect tax on the total of the payments at signing, tax the vehicle price up front, or also tax the down payment. Choose “per payment” or “up front” in the calculator to match your state.
Does a trade-in lower my lease payment?
Yes. Positive trade-in equity is applied as a capitalized cost reduction, just like cash down. Negative equity, where you owe more than the car is worth, is added to the cap cost and raises the payment.
Can I negotiate the residual value?
Generally no. The residual is set by the leasing company. The selling price, money factor markup, fees and add-ons are where negotiation happens.
What happens at the end of a lease?
You can return the car and pay any disposition, mileage and wear charges, buy it for the residual price listed in your contract, or in some cases trade it in if it is worth more than the residual.