Car lease
By Jude Wallis
A car lease pays for the value a vehicle loses over the term rather than for the whole vehicle. The payment is a depreciation part plus a rent charge for the money involved.
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The depreciation part is capitalised cost less residual value, spread over the months of the lease. The rent charge is the money factor applied to capitalised cost plus residual, which is why it does not fall as the term progresses the way loan interest does.
That structure explains which numbers are worth negotiating. A lower capitalised cost cuts both parts of the payment. A higher residual cuts depreciation and raises the rent charge slightly, so it still helps. The term length changes the split without changing the total value being consumed.
At the end the vehicle goes back, subject to mileage and condition terms that turn into charges if they are exceeded. Nothing has been bought, which is the difference from a loan. The car lease calculator builds the payment from both parts, the car loan calculator is the buying path, and car finance and depreciation compares them.