Lease Calculator
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Result
Monthly payment
- Money factor as an APR
- 4.2% (money factor 0.00175)
- Depreciation portion
- $318
- Rent charge portion
- $97.20
- Residual value
- $22,040
- Adjusted capitalized cost
- $33,500
- Total of payments
- $14,959
- Total cost including down payment
- $16,959
- A money factor of 0.00175 is an APR of 4.2% — multiply by 2,400. Dealers quote the money factor rather than the rate because a four-decimal number is hard to read as interest, and it is the single most useful question to ask on a lease: "what is the money factor?"
- The payment splits into $318.33 of depreciation and $97.20 of rent charge. Depreciation is what you pay for the value the car loses; the rent charge is interest, and note it is calculated on the cap cost PLUS the residual, not on the difference — you pay interest on the car's full value, including the part you give back.
- The $2,000.00 down payment reduces the payment by about $59.06 a month, but it is unsecured. If the car is written off early, insurance pays the leasing company and that money is generally not returned. Many advisers suggest putting nothing down on a lease for exactly this reason.
What each lever does
Only one of these is negotiable. Knowing which is most of the value in understanding a lease.
| Lever | Change | New payment | Negotiable? |
|---|---|---|---|
| Capitalized cost | −$1,000 | $386.00 | Yes — this is the one |
| Money factor | to 0.00225 (5.4% APR) | $443.30 | Sometimes — ask for it |
| Residual | to 61% | $385.86 | No — set by the lender |
| Term | to 48 months | $335.95 | Yes, but watch the warranty |
Money factor to APR
Multiply the money factor by 2,400. There is nothing more to it.
| Money factor | APR | Rent charge on this lease |
|---|---|---|
| 0.00042 | 1.01% | $23.33 |
| 0.00083 | 1.99% | $46.10 |
| 0.00125 | 3% | $69.43 |
| 0.00175 (yours) | 4.2% | $97.20 |
| 0.0025 | 6% | $138.85 |
| 0.00333 | 7.99% | $184.95 |
How is a car lease payment calculated?
A lease payment is depreciation plus a rent charge. Depreciation is the capitalized cost minus the residual, divided by the term. The rent charge is the capitalized cost plus the residual, multiplied by the money factor. Both parts are added together.
payment = (adjusted cap − residual) ÷ months + (adjusted cap + residual) × money factor APR = money factor × 2,400- adjusted cap
- Negotiated price plus rolled-in fees, less any down payment
- residual
- Predicted end-of-lease value, as a percentage of MSRP
- money factor
- The interest rate expressed as a small decimal; × 2,400 gives the APR
A lease payment has exactly two parts, and separating them explains everything about how leases are priced. Depreciation is the straightforward half: you pay for the value the car loses while you have it, which is the adjusted capitalized cost less the residual, spread over the term. The rent charge is the interest, and the detail that surprises people is the sum rather than the difference — the money factor is applied to the capitalized cost PLUS the residual, so you pay interest on the car's whole value, including the portion you hand back. The money factor itself is the industry's least transparent convention. It is just an interest rate divided by 2,400, so 0.00175 is 4.2% APR, and the only reason to quote it that way is that a four-decimal number does not read as a rate. Of the four levers on a payment, only the capitalized cost is genuinely negotiable. The residual is set by the lender and fixed; the money factor sometimes has room; the term you choose. So negotiating a lease means negotiating the selling price, exactly as it would for a purchase — a payment quoted without those numbers cannot be evaluated at all.
- Multiply MSRP by the residual percentage for the residual value.
- Subtract any down payment from the capitalized cost.
- Subtract the residual from that and divide by the term.
- Add the adjusted cap cost and residual, then multiply by the money factor.
- Add the two results for the pre-tax monthly payment.
- Multiply the money factor by 2,400 to check the APR.
Worked example: A $38,000 MSRP car at a $35,500 cap cost, 58% residual, 0.00175 money factor, 36 months, $2,000 down
A $38,000 MSRP car at a $35,500 cap cost, 58% residual, 0.00175 money factor, 36 months, $2,000 down
The residual is 58% of the $38,000 MSRP, so $22,040 — note it comes off the sticker price, not the negotiated price, which is why discounting the car does not reduce the residual. The $2,000 down payment reduces the $35,500 cap cost to an adjusted $33,500. Depreciation is therefore (33,500 − 22,040) ÷ 36 = $318.33 a month. The rent charge uses the sum rather than the difference: (33,500 + 22,040) × 0.00175 = $97.20, so you are paying interest on $55,540 of value, including the $22,040 you give back at the end. Adding the two gives a payment of $415.53, and total payments of $14,959.02 — $16,959.02 once the down payment is counted. The money factor of 0.00175 is an APR of 4.2%, since 0.00175 × 2,400 = 4.2. Had the dealer quoted 0.00300 instead, the same car would cost $484.95 a month — a $69 difference from a number that looks like noise.
What each lease input means
- MSRP
- The sticker price. The residual percentage is applied to this figure, not to what you negotiate — which is why a discount does not reduce the residual.
- Capitalized cost
- The negotiated selling price plus any fees rolled in. This is the number to negotiate — every dollar off it comes straight off the depreciation.
- Residual value
- What the car is predicted to be worth at lease end, as a percentage of MSRP. Set by the leasing company and not negotiable; a higher residual means a lower payment.
- Money factor
- The lease interest rate in disguise. Multiply by 2,400 to get the equivalent APR — 0.00175 is 4.2%. Always ask for this number rather than accepting a payment.
- Lease term
- Length in months. 36 is standard, and it usually aligns with the bumper-to-bumper warranty.
- Down payment
- Cash up front, sometimes called a capitalized cost reduction. It lowers the payment but is unsecured — if the car is totalled early, it is generally gone.
- Sales tax on payments
- Most states tax the monthly payment rather than the car's value. Enter your rate, or zero to see the pre-tax payment.
What this lease does not account for
- The residual is a percentage of MSRP, not of the negotiated price. Discounting the car lowers depreciation but leaves the residual untouched, which is why negotiating still helps.
- The rent charge uses the cap cost plus the residual, not the difference. You pay interest on the car's full value including the part you return.
- Multiply the money factor by 2,400 for the APR. A quoted payment without the money factor, cap cost and residual cannot be evaluated at all.
- A down payment on a lease is unsecured. If the car is written off early, insurance pays the leasing company and that cash is generally not returned.
- Only the capitalized cost is reliably negotiable. The residual is set by the lender, and the money factor sometimes has room but often does not.
- Most states tax the monthly payment rather than the vehicle value, but some tax the full price up front. The treatment changes the total materially.
- Mileage limits, excess-wear charges, disposition fees and acquisition fees sit outside this calculation and can add substantially at lease end.
- A term longer than the bumper-to-bumper warranty leaves you paying for repairs on a car you do not own.
Frequently asked questions
What is a money factor?
The lease interest rate written as a small decimal. Multiply it by 2,400 to get the APR — 0.00175 is 4.2%. Dealers quote it this way because it does not read as a rate.
How do you convert money factor to APR?
Multiply by 2,400. A money factor of 0.00125 is 3% APR, and 0.00333 is about 8%. To go the other way, divide the APR by 2,400.
Is the residual value negotiable?
No. The leasing company sets it as a percentage of MSRP based on predicted depreciation. A higher residual lowers your payment, so it is a reason to prefer one vehicle over another.
Should I put money down on a lease?
Often not. It lowers the payment but is unsecured — if the car is totalled early, insurance pays the lender and that cash is generally gone. Many advisers suggest zero down on a lease.
What is capitalized cost?
The negotiated selling price plus any fees rolled into the lease. It is the one number you can genuinely negotiate, and every dollar off it reduces both the depreciation and the rent charge.
Why do I pay interest on the residual value?
Because the leasing company has capital tied up in the whole car, not just the part you use. The rent charge formula adds the cap cost and residual together for exactly that reason.
Sources and review
- Vehicle leasing — Consumer Leasing Act disclosures — Consumer Financial Protection Bureau
Last reviewed .