Car lease payment calculator

A lease charges for depreciation, not for the car. Going from $30,000 to an $18,000 residual uses up 12000 of value, and spreading that over 36 months is $333.33 a month. Raise the residual and the payment falls, because there is less value to pay for.

This is why the residual matters as much as the price. Two identical cars at the same capitalised cost have very different payments if one holds its value better, and the residual is set by the lessor rather than negotiated.

The second term surprises almost everyone: the finance charge multiplies the money factor by $30000 + 18000 = 48000$, the sum of capitalised cost and residual, giving $60 a month. Interest is being charged on the money the lessor has tied up, which averages out to roughly the midpoint of the two values across the term, and multiplying the sum is the shorthand for that average.

Use the difference by mistake and the rent charge comes out at a quarter of the truth. The car loan calculator shows the contrast: a loan charges interest on a falling balance you own, while a lease charges on value you are only renting.

The 0.00125 in this example is 3 percent a year: multiply by 2400 and you have the APR. That conversion is the single most useful thing to know at a lease desk, because 0.00125 reads as nothing and 3 percent reads as a rate. The money factor calculator does the conversion both ways.

The second example uses 0.001, which is 2.4 percent, on a shorter 24 month term. Shorter terms raise the depreciation part and shrink the rent part, because there are fewer months to spread a similar drop in value over.

This is the base monthly payment: depreciation plus rent charge. Sales tax, registration, acquisition and disposition fees are added by the lessor on top, and any capitalised cost reduction paid up front lowers $C$ before the arithmetic starts. Car finance and depreciation sets leases against buying, and depreciation as a concept sits behind both. This is educational material, not financial advice.