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Lease Payment Calculation

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Monthly Payment Components:

  • Term or length of the lease: Usually 24 - 60 months.
  • Gross capitalized cost: The agreed upon value of the vehicle and any items you pay over the lease term, such as, service contracts, insurance, outstanding prior credit or lease balance and acquisition fee.
  • Capitalized cost reduction: The amount of any net trade-in, rebate, noncash or cash you pay that reduces the gross capitalized cost.
  • Adjusted capitalized cost: The gross capitalized cost less the capitalized cost reduction. The amount used in calculating the base monthly payment.
  • Residual value: The value of the vehicle at the end of the lease used in calculating the base monthly payment.
  • The money factor: A number used to calculate the rent charge. The dealer will know the money factor, which will be a decimal number.

 

The importance of these factors is clear when you see how a monthly payment is calculated. Here is an example of a lease payment calculation.

 

  • Gross capitalized cost
    Less capitalized cost reduction
    Adjusted capitalized cost

           

  • Adjusted capitalized cost
    Less residual value
    Total
    Divide by number of months leased
    Base monthly depreciation

           

  • Adjusted capitalized cost
    Add the residual value
    Total
    Multiply by the money factor
    Monthly rent charge

           

  • Base monthly depreciaton
    Add monthly rent charge
    Base monthly lease payment

$22,700
- $2,700
$20,000

           

 

$20,000
- $8,000
$12,000
48
= $250

 

  

$20,000
+ $8,000
$28,000
x 0.004
= $112

           

 

$250
+ $112
= $362*

 

*Note: Monthly sales/use taxes will be added to the base monthly lease payments.

Multiplying the money factor by 24 approximates the interest rate: 0.004 x 24 = .096 = 9.6%.