| Monthly Lease Payment Formula |
 A lease payment is made up of three parts: a depreciation fee, a finance fee, and sales tax - all added together.1. The depreciation fee portion of your payment simply pays the leasing company for the loss in value of its car, spread over the lease term (number of months), based on the miles you intend to drive and the time you intend to keep the car. You pay off an equal portion of the total expected depreciation each month. This is calculated as follows: Depreciation Fee = ( Net Cap Cost – Residual ) ÷ Term Remember, Net Cap Cost is the Gross Cap Cost (selling price you negotiate with the dealer) plus any add-on fees and taxes, and any prior loan balances, minus any Cap Cost Reductions (down payment, trade-in, or rebates). A good lease deal is when you have the lowest possible Net Cap Cost with the highest possible Residual. 2. The finance fee portion of your monthly lease payment is like interest on a loan and pays the leasing company for the use of their money. It's calculated as follows: Finance Fee = ( Net Cap Cost + Residual ) × Money Factor Yes, you add Net Cap Cost and Residual — this is not a mistake. It's not double-counting as it may appear. It's simply a way of calculating the average amount financed without using complicated constant-yield annuity business formulas (for more details, click here). Also be aware that you're paying finance charges on both the depreciation and residual (the total of which is the negotiated selling price of the car). Remember, you're tying up the leasing company's money while you're driving their car. Technically, you're paying finance charges on half the depreciation and all of the residual for the term of the lease. You won't find your Monthly Finance Fee or Money Factor shown in your lease contract. It's not required by law. Rather, they only show you a "Lease Charge" or "Rent Charge," which is the sum of all your monthly Finance Fees over the entire term of your lease. So, to find your Monthly Finance Fee when you only know your "Lease Charge" or "Rent Charge" use the following formula: Monthly Finance Fee = Lease Charge ÷ Term If you know your "Lease Charge" or "Rent Charge" from your lease contract and you want to know your Money Factor, use the following formula: Money Factor = Lease Charge ÷ ( (Net Cap Cost + Residual) x Term ) To convert Money Factor to APR Interest Rate, use the following formula: Interest Rate = Money Factor x 2400 3. Total Monthly Payment Now, add the Depreciation Fee and the Finance Fee that you calculated above to get your Total Monthly Payment. Sales tax must also be added in most states, but we'll hold that discussion until later. Total Monthly Payment = Depreciation Fee + Finance Fee Note: Ford Motor Credit (FMC) uses a slightly different, more complex formula than the rest of the world, which results in slightly higher payments — typically 2%-3% higher than the figure you get using the conventional formula above. Example Calculation Using the Leasing Formula So now that we've looked at the formula, let's see how it actually works. Let's assume you've decided on 3-year (36 month term) lease of a Honda Accord EXL V6 that has a sticker price of $25,800 (MSRP). You've managed to negotiate the price down to $24,000 (Cap Cost). You decide not to make a down payment, but you have a trade-in worth $6000. Your Net Cap Cost is therefore $24,000 - $6000 = $18,000. Now, the dealer tells you that the Money Factor is .00395 (.00395 x 2400 = 9.5%) and the Residual Percentage is 58% of MSRP. So your Residual amount, in dollars, is .58 x $25,800 = $14,964. Now let's do the math: Depreciation Fee = ( $18,000 – $14,964 ) ÷ 36 = $84.33 Finance Fee = ( $18,000 + $14,964 ) × .00395 = $130.21 Monthly Lease Payment = $84.33 + $130.21 = $214.54 + tax when aplicable |
