How a lease payment is calculated
A lease charges you for the value the car loses while you drive it, plus a finance charge. The finance charge uses a money factor instead of an APR: multiply it by 2,400 to get the equivalent APR.
Example: a $40,000 MSRP car negotiated to $38,000, with a $995 acquisition fee and $2,000 down, has an adjusted cap cost of $36,995. A 58% residual is $23,200. Over 36 months, depreciation is $383.19 a month and the finance charge at a 0.0025 money factor (6% APR) is $150.49, so the payment is $533.68, or $571.04 with 7% sales tax.
How to get a better lease
- Negotiate the price, not the payment. Every $1,000 off the cap cost saves about $28 a month on a 36-month lease.
- Ask for the money factor and check it against the "buy rate" for your credit tier; dealers can mark it up.
- A higher residual means a lower payment. It's set by the lender, so compare models.
- Keep the down payment small. If the car is totaled early, gap insurance covers the loan, but a down payment is usually lost.
Most states tax each monthly payment, as here; a few tax the whole price upfront. Thinking of buying instead? Compare with the car payment calculator.
Frequently asked questions
What is a good money factor?
It depends on interest rates and your credit. Multiply by 2,400 to compare with a loan APR: 0.0025 is 6%. If it's well above the rate you'd get on a car loan, negotiate or shop other lenders.
What is a residual value?
The car's expected value at the end of the lease, as a percentage of MSRP. It's also the price to buy the car at lease end. Typical 36-month residuals are 50% to 60%.
Is it better to lease or buy a car?
Leasing usually costs less per month and gets you a new car every few years, but you never stop paying. Buying costs more up front, and is usually cheaper over time if you keep the car for many years.
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