How do I Calculate the Cost of an Auto Lease?

Calculating the cost of an auto lease lets you estimate your monthly payments and total financial obligation before signing a contract. Doing some research to estimate your lease payment before going to the dealership can save you time and help you determine which vehicle best fits your needs and budget. In order to approximate the lease payment, you must know the sticker price, selling price, money factor, lease term and residual value of the vehicle in question.

Instructions

1

Calculate the residual value of the vehicle. For example, if you are considering a Chevy Malibu with an MSRP of $22,995 and a residual value of 60 percent the residual is $13,797. Residual is always calculated relative to the MSRP, or sticker price, of the vehicle.

2

Calculate the depreciation over the lease term. Depreciation is the residual value subtracted from the selling price of the car. Assume that the price of the vehicle in our example was negotiated down to $21,000. Subtract the residual value to arrive at $7,203. This is the depreciation, or value, of the vehicle you are using during the lease term.

3

Divide this amount by the term of your lease to get the base monthly payment. For our example, if you are taking a 39-month lease, divide $7,203 by 39. This produces a base monthly payment of $184.69.

4

Factor interest into the calculation. Interest on car leases is expressed in a money factor, which is equivalent to the interest rate divided by 2400. For example, an 8.9% APR interest rate translates to a .00371 money factor. In the example above, add the selling price of the car ($21,000) to the residual value ($13,797) and multiply the result by the money factor. The sum of the selling price and residual is $34,797, and when multiplied by .00371 the monthly interest component of the payment is $129.09.

5

Add the monthly depreciation and monthly interest to arrive at the base, pre-tax monthly payment of $313.78.

6

Multiply the base monthly payment by your state's tax rate. If, for example, the vehicle was being registered in Michigan, with a 6 percent sales tax, you would multiple $313.78 by 6. The monthly tax would be $18.82.

7

Add the tax of $18.82 to the base monthly payment of $313.78, to get a total of $332.60. This is the total monthly cost of the lease in our example, assuming no down payment.