How is a Car Lease Calculated

Have you ever wondered how the dealer comes up with a certain monthly payment for your car lease?  Sure you might have some handle on it, but it’s important to know exactly how they come up with the figure so you can determine if you’re getting a good deal, or rather, a fair one.

A car lease payment is made up a depreciation fee, a finance fee, and sales tax, which combined, total that monthly payment you love paying every 30 days.

The depreciation fee is essentially the difference between the net capitalized cost (agreed upon cost of the vehicle plus or minus any add-ons or discounts) and the residual value when the car is returned, divided by the number of monthly payments.  It’s what you pay the leasing company for the vehicle’s loss of value through the term of the lease.

Example:

MSRP = $25,000
Net Capitalized Cost = $20,000
Residual Value = $17,500
Lease Term = 24 months

($20,000 – $17,500) / 24 months = $104.17 monthly depreciation fee

Then there’s the finance fee, sometimes referred to as the lease fee, which is a sum of all your monthly interest charges paid through the lease term.  This figure may show up on your paperwork as “lease charge” or “rent charge”.  So to figure out what the monthly finance fee will be, simply divide the lease charge by the term.  For more on how this number is calculated, check out my page on money factor.

Example:

Lease or Rent Charge = $3,000
Lease Term = 24 months

$3,000 / 24 = $125 monthly finance fee

So now you take your monthly depreciation fee and add it to your monthly finance fee to come up with your monthly lease payment.  In the above example, it would be $229.17 ($104.17+$125), not including monthly sales tax, which varies widely by state.  Remember, a low net capitalized cost and a high residual will result in the lowest monthly lease payment.