How is a lease payment calculated?
Two parts: depreciation — (net capitalized cost − residual value) ÷ months — plus a finance charge — (net cap cost + residual) × money factor. Example: a $35,000 car with 55% residual over 36 months at 6% APR costs about $394/month for depreciation plus $134 finance charge, before tax. You pay for the value the car loses, plus interest on the money tied up.
What is a money factor?
The leasing industry's way of writing the interest rate: money factor = APR ÷ 2400. A 6% APR is a 0.0025 money factor. Dealers often quote the money factor because it looks tiny — always convert back (× 2400) to see the real rate, and negotiate it like any interest rate.
What is residual value and why does it matter so much?
The predicted value of the car at lease end, set by the leasing company as a percentage of MSRP. You only pay for the value ABOVE the residual, so a car holding 60% of its value costs far less to lease than one holding 45% — which is why some premium brands lease cheaply. Higher residual = lower payment.
What costs does this calculator not include?
Acquisition fees ($500–1,000), disposition fees at return ($300–500), excess mileage charges (commonly $0.15–0.30/mile over the cap), and wear-and-tear charges. Factor them into the total cost when comparing a lease against buying — the advertised payment is never the whole story.
What happens if I go over the mileage allowance?
You pay an excess charge for every mile above the limit, assessed when the car goes back. Rates vary but are typically meaningful per mile, and they add up quickly — a few thousand miles over can produce a bill in the hundreds. Because the charge is usually higher than the cost of buying the extra mileage up front, someone who knows they will exceed the allowance is generally better off agreeing a higher limit at the start. Be honest about your annual mileage rather than optimistic.
Can I get out of a lease early?
Usually, but rarely cheaply. Early termination typically means paying a settlement figure that can approach the remaining payments, since the finance company priced the deal around the full term. The alternatives are a lease transfer to another driver, which not all providers permit, or in some jurisdictions a voluntary termination right once you have repaid a set share of the total — a specific legal provision with strict conditions. Check the contract wording and, if the sums are large, get advice before committing.