How to Figure a Car Lease

When a vehicle is leased, the leaser has the right to use the vehicle for a specified amount of time and must return it or purchase it when the lease is up. Leasing has many advantages over purchasing, such as lower monthly payments, a lower required down payment and peace of mind knowing the vehicle is covered under the original factory warranty. The difference between leasing and purchasing a vehicle is that at the end of the purchase term, you own the vehicle. At the end of a lease, the leaser can choose to purchase the vehicle for its remaining value or to enter into a new lease for (or purchase) a new vehicle. When you lease a vehicle you maintain no equity in the vehicle unless it is purchased at the end of the lease. It is useful to know exactly how the monthly payment is reached to better understand the leasing process.

Instructions

1

Determine your approximate interest rate and the vehicles residual value, or the estimated value of the vehicle at the conclusion of the lease. Your interest rate will vary depending on your credit score and down payment. The residual value of the vehicle can be obtained from the dealership. As an example, assume that you have negotiated a vehicle with a $30,000 manufacturer's suggested retail price down to $25,000. Also, assume that you have been give a 9 percent interest rate.

2

Multiply the MSRP of the vehicle by the residual value, which will typically fall between 50 to 58 percent. This is the estimated value of the vehicle at the time of the lease's conclusion. For this example, assume that the residual value of the vehicle is 57 percent. With this in mind, your vehicle's estimated value at the time of the conclusion of the lease is $25,000 x .57 = $17,100.

3

Subtract the estimated value at the end of the lease from the negotiated cost of the vehicle, which will typically be less than the MSRP. For example, your negotiated price was $25,000, and the vehicle's estimated value at the time of the conclusion of the lease is $17,100, leaving a difference of $7,900.

4

Divide the result by the number of months in the lease. This is the actual cost of the vehicle per month, without interest or tax. Assuming your lease is 36 months, divide $7,900 by 36, leaving a result of $219.44.

5

Contact the dealership to find the interest rate that the lease is based upon. Once you have the interest rate, divide it by 2,400 to obtain the money factor. The money factor is a term used for the monthly interest on a lease. In the example, the interest rate is 9 percent, resulting in a money rate of .00375.

6

Add the estimated value at the end of the lease to the negotiated cost of the vehicle. Multiply the result by the money factor. For example, we would add $25,000 to $17,100, then multiply the result by .00375 to a total of $157.88.

7

Add the number obtained in Step 4 to the number obtained in Step 6 to determine the approximate monthly lease payment. In this case, we would add $219.44 and $157.88 for a total monthly payment of $377.32.