FAQ Friday: How Do I Figure Car Lease Payments?

Even though leasing has declined since the credit crunch began, more than 11% of people still leased their cars so far in 2009. Figuring lease payments is more complicated than figuring standard financing; because of that, a lot of consumers can get taken for a ride without even knowing it. Even if you use our Edmunds lease calculator to do the work for you, it's important to understand the math.

To calculate a bottom-line lease payment requires several figures:

1. MSRP of the vehicle. Find this price on Edmunds.com.
2. The money factor. This is the interest rate the lease is based on. (To get this, call the dealer or get the information from your credit union. A common interest rate is 9 percent. As a money factor, this would be .00375).
3. Lease Term. We recommend a 36-month lease to ensure warranty coverage.
4. Residual value of the car. (Call the bank or dealer to find the residual value. Most cars have a residual value of between 50 and 58 percent for a 36-month lease.)

Here's an example of how to do it for a 36-month lease. First, our starting numbers:

Sticker price of car = $23,000

Your negotiated price = $23,000

Interest rate = 9%

Residual value = 57%

Then, the calculation:

1. Sticker Price of the car + options                                                 $23,000
2. Times the residual value percentage                                         X .57%
3. Equals the residual value                                                          = $13,110

4. Invoice price of car minus incentives (net capitalized cost)        $20,000
5. Minus the residual (From line 3)                                               - $13,110
6. Equals the depreciation over 36 months                                  = $ 6,890
7. Depreciation (Line 6) divided by term in months                              X 36
8. Equals the monthly depreciation payment                                   = $ 191.39

9. Net capitalized cost (From line 4)                                                 $20,000
10. Plus the residual (From line 3)                                                 + $13,110
11. Equals                                                                                      = $33,110
12. Times the money factor                                                            X .0037
13. Equals money factor payment portion                                         = $ 122.50

14. Monthly depreciation payment (from line 8)                                   $ 191.39
15. Plus money factor payment portion (from line 12)                      + $ 122.50
16. Equals bottom-line monthly lease payment                                = $ 313.89

Don't forget that you haven't paid tax yet, and this is significant. To find out how much tax you will pay, multiply the monthly lease payment by the state sales tax. Let's say your state has an 8.25 percent sales tax:
                                                                                                               $313.89
                                                                                                            X .0825
                                                                                                              = $25.89

This has increased your monthly payment to $339.78.

In the above example, you could reduce your monthly payment by putting more money down or using cash or available rebates, if any. (Most leases require about $1,000 in "drive-off fees." Some of this money is loan initiation, some of it is security deposit and some goes toward the down payment.) The down payment would be subtracted from line 4, the invoice price of the car.

While this calculation looks a bit complicated, it actually only takes minutes to plug in the data and generate a lease payment. It's time well spent, since this will guide you through the process and help you get a good deal on a leased car.

Posted by

Joanne Helperin April 24, 2009, 11:00 AM

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Auto Leasing, FAQ Friday

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