How a car lease payment is calculated
A lease payment has two main parts:
- Depreciation – the difference between the negotiated price (after your down payment) and the car's residual value at the end of the lease, spread over the months of the lease.
- Rent charge – the leasing company's financing charge, based on the money factor. To convert an APR to a money factor, divide it by 2,400.
Sales tax is usually charged on each monthly payment. Acquisition and dealer fees are added to the amount financed.
Lease or buy?
Leasing often costs less per month and lets you drive a newer car, but you build no ownership and pay extra for miles over the limit and for wear. Buying costs more up front but the car is yours, and the cost per year falls the longer you keep it. The comparison above shows the net cost of each over the same period.
Frequently asked questions
What is a good residual value?
A higher residual value means the car is expected to hold its value, which lowers your lease payment. Residuals for popular cars are often 50% to 60% of MSRP for a 36-month lease.
Can I negotiate a lease?
Yes. You can negotiate the price of the car, which lowers the depreciation part of the payment, and ask about the money factor and fees.
What happens at the end of a lease?
You return the car and pay any charges for extra miles or excess wear, or you can buy it for the residual value stated in your contract.