Auto Lease Calculator

Auto Leases

A car lease is a contract to use a vehicle for a fixed period, usually two to four years, in exchange for monthly payments. Instead of paying for the whole car, you pay for the part of its value you use up during the lease, its depreciation, plus a finance charge and taxes. At the end you return the car, or buy it for a price set in the contract. Because you are not financing the full price, lease payments are usually lower than loan payments on the same car, but you build no ownership and must live within the lease's mileage and condition rules.

Leases are offered by carmakers' own finance companies, by banks and by independent leasing firms, usually arranged through the dealer. A closed-end lease, the standard for consumers, lets you walk away at the end after paying any mileage and wear charges, whatever the car is then worth; the leasing company bears the risk that the residual was set too high. An open-end lease, more common for businesses, makes you responsible for any shortfall between the residual and the car's actual value at turn-in. The federal Consumer Leasing Act requires the lessor to disclose the capitalized cost, residual value, rent charge, fees and total of payments before you sign.

Several terms in a lease agreement drive the payment:

• Auto price (capitalized cost): the price of the car as written into the lease, plus any fees rolled in. It is negotiable just like a purchase price. Down payments, trade-in credit and rebates are capitalized cost reductions that lower the amount being leased.
• Money factor: the lease equivalent of an interest rate, written as a small decimal. Multiply it by 2,400 to get an approximate annual rate: 0.00208 corresponds to about 5%. Dealers may mark up the base money factor set by the leasing company, so ask for the number and compare.
• Lease term: the length of the lease in months. Terms of 24, 36 and 39 months are common, and many leases are timed so the car is returned before its basic warranty expires.
• Residual value: the car's projected value at the end of the lease, set by the leasing company as a percentage of MSRP. A higher residual means less depreciation to pay for and a lower payment.
• Mileage: leases include an annual allowance, typically 10,000 to 15,000 miles. Extra miles cost a set amount each, often 15 to 30 cents, at turn-in. Buying more miles upfront is usually cheaper than paying the overage.
• Maintenance: you are responsible for following the manufacturer's service schedule and keeping records. Some leases include scheduled maintenance; otherwise budget for oil changes, tires and brakes.

Wear and tear. At the end of the lease the car is inspected. Normal wear, such as light scratches, small stone chips and tire wear within limits, is expected and not charged. Excessive wear, such as dents, cracked glass, torn upholstery, bald tires or missing equipment, is billed to you, sometimes at dealer repair rates. Fixing problems yourself before the inspection, or buying optional wear-and-tear protection, can reduce the bill.

Leases also carry fees beyond the payment. An acquisition fee, often several hundred dollars, is charged at signing and may be rolled into the capitalized cost. A disposition fee may be due when you return the car instead of buying it. Most states tax each monthly payment rather than the whole price, which is how this calculator applies sales tax; a few states tax the total of the payments or the full price upfront.

Gap coverage is especially important on a lease, because the amount you owe can exceed the car's value if it is stolen or totalled. Many leases include it; confirm before signing.

Why Lease?

Leasing suits drivers who like a new car every few years and predictable costs. Its main attractions:

• Lower monthly payments than financing the same car, because you pay only for expected depreciation and rent charge.
• A newer car that is usually under the manufacturer's warranty for the whole lease, which limits repair bills.
• No need to sell or trade in the car at the end; you simply return it, or buy it if it is worth more than the residual.
• Lower upfront costs and, for businesses, payments that may be deductible as a business expense.

The trade-off is cost over time. Someone who leases continuously always has a payment, while someone who buys and keeps a car for many years eventually drives it payment-free. Mileage caps, wear charges and early termination penalties also make leasing a poor fit for drivers who cover long distances, are hard on their cars or may need to change vehicles unexpectedly.

A rough rule: if you drive moderate miles, want a new car every three years and keep the car in good shape, leasing can make sense. If you drive a lot or like to keep cars for a long time, buying is usually cheaper.

Getting out of a Car Lease Early

Ending a lease before the term is up is usually expensive, because you owe the remaining depreciation the payments were designed to cover. Early termination fees, remaining payments and the gap between the payoff amount and the car's value can add up to thousands of dollars. Options to consider:

• Returning the car to the lessor: allowed by most contracts but often the costliest route, since you may owe the remaining payments or a calculated termination charge.
• Transferring the lease: some leasing companies let another person take over the remaining term through a lease-transfer marketplace, usually for a transfer fee.
• Buying out the lease: pay the payoff amount, then keep or sell the car. When used-car prices are high, the car may be worth more than the payoff.
• Talking to the lessor: ask about trading in for a new lease with the same brand, or other arrangements, especially if you are facing financial hardship.

Explanation of How the Calculator Computes Monthly Leases

A lease payment has two main parts. The depreciation charge spreads the loss in value evenly over the term: the adjusted capitalized cost minus the residual value, divided by the number of months. The rent charge is the finance cost: the sum of the adjusted capitalized cost and the residual value, multiplied by the money factor. Adding the two gives the base payment, and sales tax is applied on top.

Using the defaults, the adjusted capitalized cost is $50,000 − $10,000 = $40,000. Depreciation is ($40,000 − $24,000) ÷ 36 = $444.44 a month. The rent charge is ($40,000 + $24,000) × 0.00208 = $133.12. The base payment is $577.56, 7% sales tax adds $40.43 and the monthly payment comes to $617.99.

Adding the capitalized cost and residual in the rent charge may look like double counting, but it is a shortcut for the average balance over the lease. The money factor is defined as the annual rate divided by 2,400 (24 times 100) so that this shortcut gives approximately the same finance charge as a loan at that rate.

In Monthly Pay mode the calculator reverses these steps: it removes sales tax from the payment you enter and solves for the capitalized cost, then adds back your down payment and trade-in to show the car price that fits your budget.

Payment = [(C − R) ÷ n + (C + R) × MF] × (1 + t)

C

adjusted capitalized cost: price − down payment − trade-in

R

residual value

n

lease term in months

MF

money factor (interest rate ÷ 2,400)

t

sales tax rate

The first term is the monthly depreciation, the second is the monthly rent charge, and sales tax is applied to their sum.

Frequently asked questions

Sources

• CFPB – Auto loans and leases
• FTC – Financing or leasing a car