How Auto Lease Payments Are Calculated
Key Components:
1. Capitalized Cost = Negotiated Price − Down Payment − Trade-in
2. Depreciation Fee = (Capitalized Cost − Residual Value) ÷ Lease Term
3. Finance Fee = (Capitalized Cost + Residual Value) × Money Factor
4. Monthly Payment = Depreciation Fee + Finance Fee + Tax
Key Lease Terms Explained
- Residual Value: The estimated value of the car at the end of the lease (set by the leasing company). Higher residual = lower monthly payment.
- Money Factor: The "interest rate" used in leasing. You can convert APR to Money Factor by dividing by 2400 (e.g., 6% APR = 0.0025 Money Factor).
- Capitalized Cost: The amount being financed in the lease (after discounts, down payment, and trade-in).
- Depreciation Fee: The portion of the payment that covers the loss in value of the vehicle during the lease term.
- Finance Fee: The interest-like charge on the money the leasing company is "lending" you.
Important Tips
- Negotiate the price of the car first — it directly affects your capitalized cost.
- Watch out for high mileage fees (usually 10k–15k miles/year allowed).
- Understand wear and tear policies before signing.
- Leasing is often better if you like driving new cars every 2–3 years and don’t want to worry about long-term ownership.