How to calculate a car lease payment
Use this step-by-step lease payment formula to estimate your monthly payment. This includes depreciation, finance (rent) charges, and a basic approach to taxes.
What You Need (Inputs)
- MSRP (sticker price)
- Selling price (also called cap cost before fees)
- Residual percent (or residual value) from the lender
- Money factor (MF) from the lender (example: 0.00xxx)
- Lease term in months
- Miles per year (this often impacts residual)
- Fees you roll in (acquisition fee, doc fee, etc.)
- Down payment or trade credit (cap reduction)
- Tax rate and your state’s lease tax method
Step 1: Calculate Residual Value
If you are given a residual percent:
Residual value = MSRP × Residual %
Example
MSRP: $40,000, Residual: 60%
Residual value = 40,000 × 0.60 = $24,000
Step 2: Calculate Net Cap Cost
Net cap cost is the amount being financed in the lease after fees and any cap reduction.
- Gross cap cost = Selling price + rolled-in fees
- Net cap cost = Gross cap cost − cap reduction
Example
- Selling price: $38,000
- Acquisition fee rolled in: $695
- Cap reduction: $1,500
Gross cap cost = 38,000 + 695 = $38,695
Net cap cost = 38,695 − 1,500 = $37,195
Step 3: Depreciation Charge (Monthly)
Depreciation = (Net cap cost − Residual value) ÷ Term
Example
(37,195 − 24,000) ÷ 36 = 13,195 ÷ 36 = $366.53/month
Step 4: Finance (Rent) Charge (Monthly)
Finance charge = (Net cap cost + Residual value) × Money factor
Example (Money factor: 0.00180)
(37,195 + 24,000) × 0.00180 = 61,195 × 0.00180 = $110.15/month
Step 5: Base Payment (Before Tax)
Base payment = Depreciation + Finance charge
Example
366.53 + 110.15 = $476.68/month
Step 6: Add Tax (Varies by State)
Many states tax the monthly payment, but some tax leases differently. Confirm your state’s method.
If your state taxes the monthly payment:
Payment with tax = Base payment × (1 + tax rate)
Example (Tax: 7%)
476.68 × 1.07 = $510.05/month
Useful Shortcuts and Quick Checks
- APR estimate: APR ≈ Money factor × 2400
- If the payment looks too high, common causes include a marked-up money factor, a higher selling price (cap cost), a lower residual, or lots of fees rolled into the lease.