How to calculate a car lease payment

You may need to know how the car lease payment is calculated before you make a decision to finance, lease or lease take over a car.

When you lease a car, you pay to use a vehicle for a specific period of time. A leasing company buys the vehicle from your dealer before leasing it out the client.

There are some terms that we need to go through them before the calculation is made:

• MSRP- also known as sticker price.
• Lease Term: Usually between 36 and 60 months. We recommend 48 months for a car lease.
• The money factor: Divide interest rate by 2,400.
• Residual value is the lease-end resale value of the car. Usually the residual value for a car lease is between 45 to 60 percent for 48 months.
• Car Lease Fee: This fee includes registration, document fees, etc..

Example
Let’s assume we are going to lease a car and the full price is $35,000, so
# MSRP ( sticker price): $35,000
# Lease Term: 48 months
# Money factor: 0.00042 ( Interest Rate / 2,400 = 1.00 / 2,400)
# Residual value: $15,750 ( lease-end resale value)
# Depreciation Cost: $19,250 ( = MSRP – Residual value)
# Base Payment: $401.04 ( Depreciation Cost / Lease Term)
# Rent Fee: $21.32 ( (MSRP + Residual value )* Money factor)
# Lease Payment before Tax: $422.36 ( Base Payment + Rent Fee)
# Lease Payment after Tax: $477.27 ( For example in Ontario)

We generally recommend the highest possible residual value and lowest possible money factor.
Even if you take over a car lease, it is important to find out the residual value in the agreement.

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