# Auto Lease Calculator

The Auto Lease Calculator can help estimate monthly lease payments based on total auto price or vice versa.

### Auto Leases

A car lease allows a person to drive a car for a fixed period of time as they make monthly payments until the lease ends. It helps to think of it as a long-term car rental.

Quick Tip: Try not to terminate leases before their terms end, as heavy penalties will soon follow.

Generally, upkeep of regular maintenance such as oil changes are covered under warranties. Expenses for replacing worn car parts such as brakes or tires may fall to the lessee. However, faults attributed to the lessee (such as collisions of their doing) will most likely come out of their own pocket. Be sure to read the lease terms carefully as maintenance rules from lease to lease can differ greatly.

Most leases have mileage limits that penalize the lessee once the car is driven over the limit; they range anywhere from 5 to 20 cents per mile over.

Several things are required to calculate the monthly lease on any vehicle:

• Auto Price or Capitalized Cost It is possible to try and negotiate this figure down (same strategy used for buying cars) for a more affordable lease. As a matter of fact, many experts claim it is better to negotiate with car salesmen as if buying the car outright, and only when a desired figure is reached should a potential lessee reveal that they intend to lease the car and not buy.
• Money Factor This is sort of like interest rate, except applied specifically to car leases. Lessors use money factor as a way to hand out leases with rates corresponding to each lessee’s credit history. They generally work very similarly: the worse the credit history of the lessee, the higher their money factor will be, and the pricier each lease gets. To get the money factor, divide the APR on the lease by 24 or 2400 depending on whether it is expressed as a decimal or percent.
• Lease Term the length of the lease. Most leases run between 2 to 4 years, with the majority of them lasting for 3 years.
• Residual Value Sometimes called lease-end value. In essence, the residual value of a car is the amount it can be bought for at the end of the lease. Financial institutions that issue lease contracts set residual values on vehicles, not the dealers. It is essentially their expert guess as to what will be the worth of the car after the lease ends. The difference between the price of the car minus residual value will result in the depreciation of the car after a lease, which is amortized throughout the lease loan. Therefore, auto leases tend to be more affordable for slowly-depreciating vehicles because they hold their residual values well.

### Explanation of How the Calculator Computes Monthly Leases

A car leasable for 3 years has an agreed upon value of \$25,000 after negotiations on the auto price (capitalized cost). The lending financial institution for the lease has placed a residual value of \$12,500 on the car after the 3 years and has given the borrowing lessee an APR of 6% after a down payment of \$5,000. Assume that the down payment is solely to reduce the capitalized cost, not as payment for any upfront fees. For simplicity’s sake, we will assume that all fees have already been rolled into the auto price. The lessee is also willing to trade in a used car with a value of \$2,000, and the transaction occurs in a state with a 6% tax rate.

Quick Tip: As a general rule of thumb concerning leases, seek low selling prices, high residual values, and low money factors. The best combination of all of these will most likely result in the most affordable car lease.

First, arrive at a true figure for the capitalized cost. In order to do this, subtract any trade-ins or down payments from the agreed upon value of the car. If there are no trade-ins or down payments made, simply use the original agreed upon value.

\$25,000 – \$5,000 – \$2,000 = \$18,000

Subtract the residual value as supplied by the financial institution,

\$18,000 – \$12,500 = \$5,500

This is the amount that must be amortized over the life of the lease. Simply divide by the term, 36 months, to get the monthly depreciation:

Next, convert APR into money factor. Remember to use 24 or 2400, depending on expression of rate as decimal or percent,

Sum the capitalized cost and residual value, then multiply by the money factor to get the monthly interest charge,

(\$18,000 + \$12,500) 0.0025 = \$76.25

Sum the monthly depreciation and the monthly interest, then multiply this figure by the tax rate to get the monthly tax amount. If there is no sales tax, simply ignore this step.

Finally, add all three charges together to arrive at the monthly lease payment amount:

\$152.78 + \$76.25 + \$13.74 = \$242.77