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Leasing Tips
Calculate Your Own Lease Payment
By Philip Reed, Senior Consumer Advice Editor
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In order to get the best deal when you lease a car, you should begin by getting
a rough idea of what your lease payment will be for the vehicle in question.
For many consumers, this seems like an overwhelming task. But it doesn't have to be. Use the lease payment calculator created by Edmunds.com. This calculator will populate the fields necessary (residual, purchase price, sales tax etc.) to generate a real world lease quote.
However, some buyers like to work the numbers themselves, so we are providing a formula for calculating lease payments. The calculations shown here can be done using a pocket calculator. Or, you can create an Excel spreadsheet to make the calculations automatic. Either way, this will be a valuable tool in saving money when you lease a car.
Calculating a lease payment to the penny is nearly impossible, particularly when
the lease is subsidized by the automaker, but you can arrive at a ballpark figure
by using the following formula, which we will illustrate using a $23,000 car on
a three-year lease.
Lease Payment Estimating
You can calculate a "bottom-line lease" that represents the very best deal you could get. If you get payments within $20 a month of this (in a 36-month lease), you will have done well.
To calculate a bottom-line lease payment you will need several figures:
- MSRP of the vehicle. Find this price on Edmunds.com.
- The money factor. This is the interest rate the lease is based on.
To get this, call the dealer or get the information from your credit union.
A common interest rate is 9 percent (as a money
factor, this would be .00375).
- Lease Term. Again, we recommend a 36-month lease to ensure warranty
coverage.
- Residual value of the car. Call the bank or dealer to find the residual
value. Most cars have a residual value of between 50 and 58 percent for a
36-month lease.
Calculating A Sample Lease Payment
In the following example, we have chosen a vehicle that has a sticker price of
$23,000. You have negotiated the price down to $20,000. We'll also assume that
the interest rate is 9 percent and the residual value is 57 percent. What are
the monthly payments on a three-year lease?
The first step is to find out how much of the car's value you will use. In other
words, down the road three years, what will it be worth? In this example, the
MSRP of $23,000 is multiplied by the residual value of 57 percent.
$23,000 X .57 = $13,110
The car will be worth $13,110 at the end of the 36-month lease. Since the car
was worth $20,000 (after you negotiated it down) and it will be worth $13,110,
you will be using $6,890 of the car's value.
$20,000 - $13,110 = $6,890
The $6,890 is then broken into 36 monthly payments of $191.39.
Before you get excited about how low this payment is, remember that this figure
doesn't include interest or tax. Finding the interest amount is the second half
of the calculation. Interest on a lease is computed in a weird way. You add the
negotiated price of the car to the residual value and multiply this by the money
factor.
($20,000 + $13,110) X .0037 = $122.50
Finally, these two figures are added together to give you the approximate bottom-line
monthly lease payment.
$191.39 + $122.50 = $313.89
Remember, this figure does not include taxes or fees and doesn't take into consideration
any down payment or upfront money such as rebates or incentives. The entire formula
looks like this:
| 1.
Sticker Price of the car + options |
$23,000 |
| 2.
Times the residual value percentage |
X
.57% |
| 3.
Equals the residual value |
=
$13,110 |
| 4.
Invoice price of car minus incentives (net capitalized cost) |
$20,000 |
| 5.
Minus the residual (From line 3) |
-
$13,110 |
| 6.
Equals the depreciation over 36 months |
=
$ 6,890 |
| 7.
Depreciation (Line 6) divided by term in months |
÷
36 |
| 8.
Equals the monthly depreciation payment |
=
$ 191.39 |
| 9.
Net capitalized cost (From line 4) |
$20,000 |
| 10.
Plus the residual (From line 3) |
+
$13,110 |
| 11.
Equals |
=
$33,110 |
| 12.
Times the money factor |
X
.0037 |
| 13.
Equals money factor payment portion |
=
$ 122.50 |
| 14.
Monthly depreciation payment (from line 8) |
$
191.39 |
| 15.
Plus money factor payment portion (from line 12) |
+
$ 122.50 |
| 16.
Equals bottom-line monthly lease payment |
=
$ 313.89 |
Don't forget that you haven't paid tax yet, and this is significant. To find out
how much tax you will pay, multiply the monthly lease payment by the state sales
tax. For this example, your vehicle will be leased in California, which has an
9.25 percent sales tax:
$313.89 X .0925 = $29.03
This has increased your monthly payment to $342.92.
In the above example, you could reduce your monthly payment by putting more money
down. (Most leases require about $1,000 in "drive-off fees." Some of this money
is loan initiation, some of it is security deposit and some goes toward the down
payment.) The down payment would be subtracted from line 4, the invoice price
of the car.
While this calculation looks a bit complicated, it actually only takes minutes
to plug in the data and generate a lease payment. It's time well spent, since
this will guide you through the process and help you get a good deal on a leased
car.
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