What this calculator does
A lease payment has two parts: the depreciation you are paying for, and a finance charge on the money tied up. Understanding the split explains why leases are quoted the way they are and where the negotiation room lies.
The money factor is the confusing part. It is the interest rate divided by 2400, so 6 per cent APR becomes a money factor of 0.0025. Dealers quote the small decimal rather than the rate, which makes comparison harder than it needs to be.
The formula
The depreciation fee spreads the difference between net capitalised cost and residual value over the term. The finance fee applies the money factor to the sum of those two figures, and the payment is the total, plus any tax.
| Term | Meaning |
|---|---|
| Capitalised cost | The negotiated vehicle price, which is what the lease is built on. |
| Residual value | What the vehicle is contracted to be worth at lease end. A higher residual means lower payments. |
| Money factor | The lease interest rate expressed as a small decimal. Multiply by 2400 to get the APR. |
The inputs explained
| Field | What to enter |
|---|---|
| Negotiated price (capitalised cost) ($) | The negotiated price, which is as negotiable on a lease as on a purchase. |
| Down payment / cap cost reduction ($) | Any upfront payment reducing the capitalised cost. |
| Residual value at lease end ($) | The contracted residual value at the end of the term. |
| Lease APR (equivalent interest rate) (%) | The equivalent annual interest rate. Divide by 2400 for the money factor. |
| Lease term (months) | The lease term in months. |
| Sales tax on the payment (%) | Sales tax applied to the payment, where applicable. |
When to use it
Checking a dealer quote
Working the payment from first principles reveals whether the quoted figure matches the stated terms.
Converting a money factor
Multiplying by 2400 turns the quoted decimal into an interest rate you can actually compare.
Understanding why longer is cheaper monthly
A longer term spreads the same depreciation further, though total cost rises.
Worked examples
Every figure in the tables below is produced by this page’s own calculator at build time, so the numbers and the tool always agree. Select any row to load that scenario.
How does the term change the payment?
The same vehicle over three lease terms.
| Lease term | Monthly lease payment | Total of all lease payments |
|---|---|---|
| 24 months | $620.00 | $14,880.00 |
| 36 months | $453.33 | $16,320.00 |
| 48 months | $370.00 | $17,760.00 |
Questions
What is a money factor?
The lease equivalent of an interest rate, expressed as a small decimal. Multiply by 2400 to convert it to an APR, so 0.0025 is 6 per cent. There is no good reason for the convention beyond tradition.
Why does the finance fee use the sum of cap cost and residual?
Because it approximates the average balance outstanding over the lease. The amount financed falls steadily from the capitalised cost toward the residual, and adding the two endpoints and applying the factor captures that average.
Does a down payment on a lease make sense?
Often not. It lowers the payment but is generally not refunded if the vehicle is written off early, so the money is at risk in a way it would not be on a purchase. Many advisers suggest minimising it.
Why does a higher residual lower the payment?
Because you only pay for the depreciation you use. If the car is contracted to be worth more at the end, less value has been consumed, and the depreciation fee falls accordingly.
For buying the vehicle with a loan instead, see the loan payment calculator. For how depreciation is accounted for, see the depreciation calculator.