Finance
Break down a car lease into its real monthly payment, total cost, and what's driving the price.
A lease payment has two parts. The depreciation fee covers the value the car is expected to lose over the lease — the gap between its adjusted cost and its residual (predicted resale) value, spread evenly across the term. The rent charge (sometimes called the "finance fee") is the lease's equivalent of interest, calculated using a "money factor" derived from the APR you enter (roughly APR ÷ 2400).
The residual value is set by the leasing company, not negotiated by you — it's their prediction of the car's resale value at lease end, and it has a big effect on your payment: a higher residual percentage means less predicted depreciation, which usually means a lower monthly payment.
Common questions about how car leases work and reading your lease terms.
The money factor is how leasing companies express the interest-like cost of a lease, shown as a small decimal (like 0.00125) instead of a percentage. You can convert between the two roughly by multiplying the money factor by 2400 to get an equivalent APR, or dividing an APR by 2400 to estimate the money factor — which is exactly what this calculator does internally so you can enter the more familiar APR.
The residual value is the leasing company's prediction of what the car will be worth at the end of the lease, and it directly determines how much 'depreciation' you're paying for — the gap between the car's current adjusted cost and that future residual value. Vehicles that hold their value well (high residual percentage) typically lease for noticeably less than similarly priced vehicles that depreciate quickly, even at the same purchase price and interest rate.
Many financial advisors caution against large down payments on leases, because that money is at risk if the car is totaled or stolen early in the lease — insurance typically covers the car's value, not your down payment, unless you have gap insurance. A smaller down payment (or none) with a slightly higher monthly payment is often considered lower-risk, though it does mean paying more in rent charge over the life of the lease.
You'll typically owe the excess-mileage fee (often $0.15-$0.30 per mile) for every mile over your contracted allowance, charged when you return the car. If you consistently expect to drive more than a standard allowance (commonly 10,000-12,000 miles/year), it's usually cheaper to negotiate a higher mileage allowance upfront rather than pay the per-mile overage fee at lease-end, since the upfront rate is typically discounted compared to the end-of-lease penalty rate.
It depends on your priorities: leasing generally means lower monthly payments and driving a newer car more often, but you build no equity and face mileage/wear restrictions, while buying (especially with cash or a short loan) usually costs less over the long run if you keep the car for many years past when a loan would be paid off. Frequent lessees who lease a new car every 2-3 years typically pay more in total transportation cost over a decade than someone who buys and holds a car for 8-10 years.
