How a car lease works
When you lease a car, you pay for the part of its value you use up during the lease, plus a finance charge and sales tax, and then return it. This auto lease calculator works out the monthly lease payment from the price, the residual value and the money factor or interest rate, and prices a purchase on the same terms so you can compare leasing with buying. Switch to Monthly pay to find the price of a car a payment you can afford will lease.
How the lease payment is calculated
- Capitalized cost (the amount you lease) = price − down payment − trade-in value.
- Depreciation = (capitalized cost − residual value) / number of months.
- Finance charge = (capitalized cost + residual value) × money factor.
- Monthly tax = (depreciation + finance charge) × sales tax rate.
- Monthly lease payment = depreciation + finance charge + monthly tax.
The finance charge uses the capitalized cost plus the residual because, on average over the lease, you owe about half of their sum. That is why the money factor is the yearly rate in percent divided by 2,400: 100 for the percent × 12 months × 2 for the half. The Monthly pay tab solves the same formula for the capitalized cost and adds back the down payment and trade-in.
Example
A $50,000 car leased for 36 months with $10,000 down, a $24,000 residual value, 7.14% interest (a money factor of about 0.00297) and 7% sales tax:
- capitalized cost: $50,000 − $10,000 = $40,000;
- depreciation: ($40,000 − $24,000) / 36 = $444.44 a month;
- finance charge: ($40,000 + $24,000) × 7.14 / 2,400 = $190.40 a month;
- tax: ($444.44 + $190.40) × 7% = $44.44 a month.
The payment is $679.28 a month, and you pay $10,700 at signing: the down payment plus $700 of tax on it. Over 36 months the lease costs $35,154 in total.
Money factor to APR
Dealers quote the finance charge of a lease as a money factor. Multiply it by 2,400 to compare it with a loan rate, or divide a rate by 2,400 to get the money factor. The calculator accepts either one.
| Money factor | Equivalent APR |
|---|---|
| 0.0010 | 2.40% |
| 0.0015 | 3.60% |
| 0.0020 | 4.80% |
| 0.0025 | 6.00% |
| 0.0030 | 7.20% |
| 0.0040 | 9.60% |
Lease payment by residual value
The leasing company sets the residual value as a percent of the car's list price. The higher it is, the less value you pay for. The same $50,000 car over 36 months with $10,000 down:
| Residual | Residual value | Monthly payment | Total lease cost |
|---|---|---|---|
| 50% | $25,000 | $652.74 | $34,199 |
| 55% | $27,500 | $586.40 | $31,810 |
| 60% | $30,000 | $520.05 | $29,422 |
| 65% | $32,500 | $453.70 | $27,033 |
This is why cars that hold their value well often lease for less than cheaper cars that lose value fast.
Should you put money down on a lease?
| Down payment | Due at signing | Monthly payment | Total lease cost |
|---|---|---|---|
| $0 | $0 | $1,008.34 | $36,300 |
| $2,500 | $2,675 | $926.07 | $36,014 |
| $5,000 | $5,350 | $843.81 | $35,727 |
| $10,000 | $10,700 | $679.28 | $35,154 |
- A down payment mostly moves money from the monthly payments to the day you sign: $10,000 down saves only $1,146 of finance charges over the lease.
- If the car is stolen or totaled, insurance pays the leasing company, and the down payment is usually lost. Many people put as little down as possible for that reason.
- Gap insurance, often included in leases, covers the difference between the insurance payout and what you still owe.
Leasing or buying
The calculator also prices a loan on the same terms: the same price, down payment, trade-in, rate and tax. In the example the loan payment is $1,237.65 a month against $679.28 for the lease, but at the end you own the car. Leasing and then buying the car for its residual value plus tax costs $60,834, about $2,779 more than buying it now for $58,055.
- Leasing fits if you want a new car every two or three years, drive within the mileage limit and like lower monthly payments.
- Buying fits if you keep cars for many years, drive a lot or want to change the car freely; after the loan is paid off, the car costs you only upkeep.
- Car loan interest on a new U.S.-assembled car can be tax deductible for 2025 through 2028; lease payments do not qualify. See the auto loan calculator for a full loan with fees and a trade-in.
Lease costs the payment leaves out
- Acquisition fee: charged by the leasing company at signing, often several hundred dollars.
- Disposition fee: charged when you return the car, unless you buy it or lease another from the same brand.
- Mileage limit: leases usually allow 10,000 to 15,000 miles a year and charge for every extra mile.
- Excess wear: damage beyond normal wear is billed when you return the car.
- Sales tax rules differ: most states tax each monthly payment, as the calculator does, but some tax the whole price or all payments at signing.
If the dealer offers a rebate or a special rate on a purchase instead, the cash back or low interest calculator shows which deal is cheaper.