Calculate Car Lease Payments

One of the first questions or steps individuals ask dealership is “How much is it going to cost me?” Calculating a car lease to understand what the individual is financially committing to pay every month, it’s important for the individual to understand how to calculate the car lease payments.

Understanding the fundamentals of how dealers come up with the final sticker price of your car lease will save you money, confusion, stress and agony. When you know how to calculate your monthly lease payments, you’ll have a better understanding what you can afford, the overall costs and where / how to negotiate with the dealer.

Calculating your car lease covers three main areas – finding and understanding your monthly payments, calculating your total lease costs and discovering hidden fees in your lease payments.

Car Lease Calculator

Understanding how to calculate your car lease can be done through a number of online car lease calculators. When trying to figure out the monthly car lease payments, you’ll need to understand:

• What is the MSRP (Manf. Suggested Retail Price)?
• What is the base cap cost of the car lease?
• What additional costs are included in the lease agreement?
• What Cap Cost Reductions are available or applied?
• Knowing how to calculate the Net Cap Cost of the auto lease payment
• Calculate the car lease residual value
• What is the car lease month factor
• Length of the lease term
• Taxes

To briefly cover the above points when calculating a car lease, the MSRP is the vehicles sticker price, not including any additional charges.

The Base Cap Cost is the negotiated lease price for the vehicle. This is determined by the price you and the dealer negotiate and agree upon.

Additional costs including in the lease agreement may include banking fees, taxes, insurance, extended warranties, etc.

Cap Cost Reductions in the lease agreement when calculating a car lease payment is the cost of the lease reduced by any payments you initially put down. Some individuals will place a down payment on the lease to bring down the overall monthly payments. This is one of the advantages of taking over a short term lease from someone seeking to terminate a car lease early and transfer the lease. The individual taking over the lease would not have incurred the down payment the original individual put down on the lease agreement. Therefore the individual assuming the lease will experience the same lower monthly payments on the car lease, without outlaying the capital of the down payment.

Calculating the car lease payments also takes into account calculating the residual value of the car lease, even if your considering a lease transfer. This is the residual value of the car lease at the end of the lease term. This value is an estimate of the vehicles value at the end of the lease term.

Then of course there is the “Money Factor”. You may hear this term tossed around when negotiating your lease deal. The money factor is the cost of the lease financing. Like any loan or mortgage, there is a cost to borrow or in this case lease. This rate is typically not disclosed in the lease agreement when the individual leasing the car, but it will show a “Lease Charge”.
Knowing this value you can work it backwards to figure out the Money Factor. (Divide the lease charge by the number of months in your lease agreement, then divide by the total of the Cap Cost and Residual Value). This will give you your car leases Money Factor when calculating the lease payments.

The two last components of calculating car lease payments is the term of the auto lease – the length of time (in months) you’ll have the car lease – and the taxes. The term of a car lease is typically 24-48 months. The tax on the lease will also differ from province to province and state to state. Depending on the province or state you live, local taxes will apply. This tax is typically known as the provincial or state sales tax.

When calculating a car lease payment using the points outlined above will help you understand the financial commitment you’re getting into for leasing a car. While at first it may look complicated, there are a number of online lease calculators that will help you easily calculate the details above to come up with your monthly lease payment.