Components of a Lease Payment
When you lease a car, you’re paying for the depreciation of the vehicle during your lease term. Depreciation is the difference between the capitalized cost, the amount being financed by the lease, and the residual value, the expected value of the car at the end of the lease. To figure out the total cost of your lease, the lessor calculates the estimated depreciation and adds the interest you, as the lessee, will pay on the amount financed, as well as any other sales tax and fees.
Usually, if you have excellent credit you will have an option to have an auto lease with little or no upfront costs. Though sometimes, it may be a good idea to opt for a higher down payment, regardless of your credit situation. Below are a set of calculators that will help you:
- Convert between an APR and Money Factor, in either direction
- Calculate the Monthly Payment when you know the Cap Cost, Residual Value, Money Factor and Sales Tax Rate
- Calculate the Amount Due at Signing once you know the monthly payment, down payment, and fee amounts
For more about the components of lease payments and the amount due at signing, see this page in the Leasing Basics section.
Calculating the Monthly Lease Payment
There are three components of your monthly lease payment: the depreciation, the rent charge, and the sales/use tax:
- Depreciation portion of the payment is the total depreciation, which is the Cap Cost minus the Residual Value, divided by the term of the lease.
- Rent Charge portion of the payment is the Money Factor multiplied by the sum of Cap Cost and Residual Value.
- Sales/Use Tax portion is your base monthly payment (Depreciation portion plus rent charge portion) times your sales tax rate. This varies in some locations where taxes on leases are handled differently.
Calculating the Amount Due at Signing
Even if you don’t plan to make a down payment and want to roll all the government fees like vehicle registration into the monthly payments, don’t leave your checkbook at home! It is common in auto leasing to make the first monthly payment at signing. Also, even with perfect credit it may not be possible to roll the acquisition fee into the cap cost that will be paid over the term of the lease. That will depend on the lessor and dealer. Also, there may be other fees like the dealer doc fee, or the government fees like registration, title, or assorted other fees in your state associated with buying a car that you want to pay upfront so it won’t increase your monthly payment. Finally, if you are making a down payment to reduce the cap cost, that will be paid at signing as well. This calculator lets you estimate how much you will need to take delivery of your new car. Ask your dealer about any of these fees – they should know exactly on some, and be able to estimate the others, even if you haven’t yet settled on a specific vehicle.
The Federal Reserve Board now requires that all dealers disclose lease down payments, term length, residual values and interest rates for all leases.