1. What Are Lease Payments?

Lease payments are the monthly amounts you pay to use a vehicle or equipment without owning it. These payments cover the vehicle's depreciation during the lease term plus a finance charge.

2. How Lease Payments Are Calculated

The lease payment calculation uses these formulas:

Where:

• \( Dep \) — Depreciation charge ($/month)
• \( Fin \) — Finance fee ($/month)
• \( MP \) — Monthly payment ($)
• \( CC \) — Capitalized cost (negotiated price)
• \( RV \) — Residual value (end-of-lease value)
• \( T \) — Lease term (months)
• \( MF \) — Money factor (interest rate expressed as decimal)

Explanation: The depreciation is the value lost during the lease, while the finance charge is essentially the interest on the lease.

3. Understanding the Components

Capitalized Cost: This is the negotiated price of the vehicle plus any additional fees or items you roll into the lease.
Residual Value: The estimated value of the vehicle at lease end, set by the leasing company.
Money Factor: The lease's interest rate (divide by 2400 to convert to APR).
Term: Typically 24-48 months for vehicles.

4. Using the Calculator

Tips: Enter all values as positive numbers. Money factor is typically a small decimal (e.g., 0.00125 which equals 3% APR).

5. Frequently Asked Questions (FAQ)

Q1: How is money factor different from interest rate?
A: Money factor is the interest rate divided by 2400. To convert to APR, multiply money factor by 2400.

Q2: What's a good residual value percentage?
A: Typically 50-60% of MSRP for a 36-month lease, but varies by vehicle.

Q3: Can I negotiate the capitalized cost?
A: Yes, you can negotiate the vehicle price just like when buying.

Q4: Why add CC and RV in the finance calculation?
A: This approximates the average amount financed over the lease term.

Q5: Are taxes included in this calculation?
A: No, taxes and fees are typically added to the monthly payment separately.