How to Calculate a Car Lease

The idea of leasing a vehicle is based on the concept that you are paying for the amount of depreciation you have used during the term of your lease. To calculate a lease there are a number of different factors that are involved. The price of the vehicle, interest rate, the residual value, mileage allowance, and the money factor.

Instructions

1

Negotiate the price of the vehicle your are going to lease. Price on the car is negotiable on a lease. Leasing a car changes nothing on the negotiation process of the vehicles price when you are considering a lease.

2

Look at the residual value when the offer is brought out from the sales office. The depreciation value is defined as the difference of the vehicles original paid price and what the value of the vehicle will be at the end of the lease, the "residual value". Example: you lease a vehicle for 36 months and the price of the vehicle is $20,000, if the residual value is 50 percent when you turn the vehicle in the projected value is $10,000.

3

Look at your mileage limits in your lease offer. If you are going to drive the vehicle over on the mileage limits on the lease you will be penalized when you turn your vehicle in. You have an option to increase the mileage limits but your monthly lease payments will increase as well.

4

Make sure you research before hand your what your credit score qualifies you on a car loan. You should be able to get the same interest rate on a lease.

5

Understand the money factor. This money factor is what interest you are paying monthly for the lease. This is negotiable. The easy calculation to convert the money factor to an APR percentage is to multiply the money factor by 2400.

6

Calculate these three lease formulas to find out how much interest you're going to pay over the term of the lease.

Money factor: Example, .0025 multiplied by 2400 = 6 percent APR
Convert these numbers to true decimal numbers now to use in the following formulas. 6 percent = .06
.06 divided by 12 months =.005 interest per month

This formula will give you the amount of interest paid over the full term of the lease:

N(Cr+Fr ) divided by 2

N= Number of months of the lease
C= Capitalized Cost or the price on the vehicle you negotiated off MSRP
F= Residual value (use decimals numbers here to i.e. 50 residual = .50 or 50 percent)
r= The monthly interest rate calculated in the previous formula

This last formula will give you the average of interest paid per month over the course of the entire lease:

(C+F)r divided by 2

C= Capitalized Cost or the price on the vehicle you negotiated off MSRP
F= Residual value
r= The monthly interest rate calculated in the previous formula