Auto Lease Calculator

How auto leasing works

An auto lease is a long-term rental contract that allows you to drive a new vehicle for a fixed period (typically 24 to 48 months) in exchange for monthly payments. Unlike purchasing a car with a traditional loan where payments build equity in the entire vehicle, lease payments cover only the vehicle depreciation during the lease term, plus finance charges and local taxes.

Because you are only financing the expected loss in vehicle value rather than the total purchase price, monthly lease payments are generally lower than monthly loan installments for the same vehicle. If you are comparing a lease against standard vehicle financing, calculate your monthly car payment with our auto loan calculator, check our EMI calculator, or examine detailed borrowing costs in our advanced loan calculator.

Core components of a car lease

Every auto lease agreement is built around four fundamental financial terms:

• Gross Capitalized Cost (Gross Cap Cost): The agreed-upon selling price of the vehicle plus any dealer options, acquisition fees, or rolled-in taxes.
• Cap Cost Reduction: Any upfront cash down payment, trade-in equity, or manufacturer rebates that reduce the total amount being financed.
• Adjusted (Net) Capitalized Cost: The starting balance financed under the lease ($\mathrm{Cap}_{\text{net}} = \mathrm{Cap}_{\text{gross}} - \text{Cap Cost Reduction}$).
• Residual Value: The estimated wholesale market value of the vehicle at the end of the lease term, established by the leasing company as a percentage of MSRP.
• Money Factor (Lease Factor): The interest rate expressed in fractional leasing format. Multiplying the money factor by 2,400 yields the equivalent annual percentage rate (APR).

Mathematical formulas for auto lease payments

The total monthly lease payment consists of three distinct components: monthly depreciation, monthly finance charge (rent charge), and monthly sales tax.

1. Monthly depreciation

Depreciation represents the difference between the net capitalized cost and the residual value, divided evenly over the lease term $N$:

2. Monthly finance fee (rent charge)

The finance fee compensates the lessor for tied-up capital. Under US leasing standards (Regulation M), the rent charge is calculated by adding the net capitalized cost and the residual value, then multiplying by the money factor ($\mathrm{MF}$):

If the dealer quotes an APR instead of a money factor, convert it using $\mathrm{MF} = \text{APR} / 2400$. To explore how effective borrowing rates compare across various credit products, explore our APR calculator.

3. Total monthly payment with taxes

Adding depreciation and rent charge produces the base monthly payment. In most states, local sales tax is levied on each monthly installment:

Published worked example

Consider a standard 36-month lease on a $35,000 vehicle with the following terms:

• Vehicle Price: $35,000 with a $650 acquisition fee capitalized ($35,650 Gross Cap Cost).
• Down Payment: $3,000, leaving an Adjusted Cap Cost of $32,650.
• Residual Value: 55% of $35,000 = $19,250.
• Money Factor: 0.0025 (equivalent to 6.00% APR).
• Sales Tax Rate: 7.00%.

The step-by-step calculations proceed as follows:

1. Total Depreciation: $32,650 - $19,250 = $13,400.
2. Monthly Depreciation: $13,400 / 36 = $372.22 per month.
3. Monthly Rent Charge: ($32,650 + $19,250) * 0.0025 = $51,900 * 0.0025 = $129.75 per month.
4. Base Monthly Payment: $372.22 + $129.75 = $501.97 per month.
5. Monthly Sales Tax: $501.97 * 0.07 = $35.14 per month.
6. Total Monthly Payment: $501.97 + $35.14 = $537.11 per month.

Over 36 months, total scheduled payments equal $19,335.96. Adding the $3,000 down payment and a standard $350 disposition fee brings total all-in lease expenditure to $22,685.96. You can review how fixed loan balances amortize over similar intervals in our amortization calculator.

Lease vs. buy: Which is better?

Choosing between leasing and buying depends on your driving habits, budget preferences, and long-term ownership goals:

Frequently asked questions