Calculate your monthly car lease payments and total lease costs
Typically 50-65% of MSRP
Typically 0.001-0.003
Fee charged when returning the vehicle at lease end
Car leasing is essentially a long-term rental where you pay for the vehicle's depreciation during the lease term rather than its full purchase price. At the end of the lease, you return the car to the dealership unless you choose to buy it at the predetermined residual value.
Leasing typically offers lower monthly payments compared to financing a purchase, making it attractive for those who want to drive newer vehicles with the latest features. However, you don't build equity in the vehicle, and there are mileage restrictions and potential fees for excess wear and tear.
Depreciation Fee: This is the largest component of your lease payment. It's calculated by subtracting the residual value from the capitalized cost (vehicle price minus down payment) and dividing by the lease term in months.
Finance Charge: Also called the rent charge, this is the interest you pay on the lease. It's calculated by adding the capitalized cost and residual value, then multiplying by the money factor.
Money Factor: This is the lease equivalent of an interest rate. To convert money factor to APR, multiply by 2,400. For example, a money factor of 0.00125 equals 3% APR (0.00125 × 2,400 = 3).
Residual Value: This is the estimated value of the vehicle at the end of the lease term, expressed as a percentage of MSRP. Higher residual values result in lower monthly payments because you're paying for less depreciation.
Shortest common lease term. Higher monthly payments but less total depreciation. Good for those who want to upgrade vehicles frequently or expect lifestyle changes.
Most popular lease term. Balanced monthly payments and typically aligns with manufacturer warranty periods. Offers good flexibility and value.
Longer term with lower monthly payments but higher total cost. May extend beyond warranty coverage. Consider if you want the lowest possible monthly payment.
Charged by the leasing company to initiate the lease. Sometimes called a bank fee or administrative fee. This is typically non-negotiable and due at signing.
Charged at the end of the lease when you return the vehicle. Covers the cost of preparing the car for resale. May be waived if you lease or buy another vehicle from the same brand.
Most leases include 10,000-15,000 miles per year. Exceeding this limit typically costs $0.15-$0.30 per mile. Consider purchasing additional miles upfront if you drive more than average.
Charges for damage beyond normal wear. This includes dents, scratches, interior stains, or mechanical issues. Consider wear-and-tear protection or repair minor damage before returning.
Negotiate the Vehicle Price: Many people don't realize the capitalized cost (vehicle price) is negotiable in a lease, just like when buying. A lower vehicle price directly reduces your monthly payment.
Shop the Money Factor: Different lenders offer different money factors. Compare offers from multiple dealers and credit unions. A lower money factor can save you hundreds over the lease term.
Consider Multiple Down Payment Options: While a larger down payment reduces monthly payments, it increases your risk if the car is totaled or stolen early in the lease. Balance lower payments with risk tolerance.
Understand the Residual Value: Higher residual values mean lower payments, but they're set by the manufacturer and aren't negotiable. However, some brands offer better residual values than others.
| Factor | Leasing | Buying |
|---|---|---|
| Monthly Payment | Lower | Higher |
| Ownership | No equity built | Build equity, own asset |
| Mileage | Limited (10k-15k/year) | Unlimited |
| Customization | Not allowed | Full freedom |
| End of Term | Return or buy | Keep or sell |
| Wear & Tear | Potential charges | No restrictions |
| Long-term Cost | Higher (continuous payments) | Lower (eventual ownership) |
Many lessees focus only on monthly payment and don't negotiate the vehicle price. Always negotiate the capitalized cost just as you would when buying.
Excess mileage charges add up quickly. It's usually cheaper to purchase additional miles upfront than to pay overage fees at lease end.
If the car is totaled or stolen, you lose your down payment. Keep down payments minimal and consider gap insurance instead.
Focus on total cost, not just monthly payment. A longer lease with lower payments may cost more overall due to additional interest charges.
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