How to Calculate Car Lease Payments

chris on July 22, 2016

September car leasing special

Hunting for a great car lease deal is inconvenient and exhausting. Even if you’ve contacted multiple vehicle leasing companies, it’s difficult to identify a fair quote without knowing what goes into determining that number. That’s why D&M Leasing has simplified the process for you.

Estimate Your Lease Payment

All you need to calculate your car lease is a few simple details about the car you want and current interest rates.

You Will Need:

  1. The MSRP: What is the car listed at? The manufacturer’s suggested retail price (MSRP) is the standard dollar amount that the vehicle is worth when brand new.
  2. The Money Factor: The money factor is how your interest rate is calculated. It is used as an alternate way of expressing the annual percentage rate (APR). On average, the money factor is 0.00125.
  3. Lease term: The standard lease term is 36 months. Other car leasing companies may offer longer lease terms, but it’s not recommended since you will pay for more depreciation.
  4. Residual: The best way to find out the residual value is by either calling the dealership, or looking it up online through a vehicle valuation company such as Kelley Blue Book®. Residuals for 36-month lease terms are typically between 45 and 60 percent.

Calculate Your Lease Estimate

The average cost of a new vehicle is about $33,000, so we will use it as the MSRP to show you how lease estimates are calculated. Residual Values are usually between 45 and 60 percent. We’ll use the lowest residual value in our example. This serves as an example of a car lease quote without any negotiated costs or specials.

  • Multiply the MSRP by the Residual Value (Percentage).
    First, you need to determine the car’s worth at the end of the lease term.
    Equation:
    MSRP x Residual Value (percentage) = Residual Value (dollars)
    $33,000 x 0.45 = $14,850
  • Subtract the Residual Value (Dollars) from the MSRP.
    Since you’ve estimated residual value, next calculate the depreciation.
    The depreciation is the amount of car “use” you are paying for during your lease.
    Equation:
    MSRP – Residual Value (dollars) = Depreciation
    $33,000 – $14,850 = $18,150
  • Divide the Depreciation by the Lease Term
    Now that you have an estimate on how much your total cost of your lease will be, you can calculate your monthly payments.
    Equation:
    Depreciation ÷ Lease Term (Months) = Monthly Payment
    $18,150 ÷ 36 = $504
  • Calculate the Interest Rate
    You have your monthly car lease estimate now, but you will also have to pay monthly interest rates. Both car lease and loan payments have interest rates. The money factor is used in quantifying the interest rate.
    Equation:
    (MSRP + Residual Value) x Money Factor = Interest Rate
    ($33,000 + $14,850) x 0.00125 = $59.81
  • Add the Monthly Payment Estimate and Interest Rate
    Equation:
    Monthly Payment + Interest Rate = Total Payment
    $504 + $59.81 = $563.81

Keep in mind that the number you calculated is an estimate; local taxes and additional fees greatly affect car lease quotes. However, you now have a clear picture of a reasonable offer to compare with vehicle leasing companies. It’s also worth taking note that D&M Auto Leasing offers low, competitive interest rates, as well as real market residual values. Learn about our Leasing!