How is a lease payment calculated?

A lease payment consists of two parts: a depreciation charge and a finance charge. The depreciation charge is the difference between the capitalized cost and the residual value, divided by the lease term in months. The finance charge is the sum of the capitalized cost and residual value, multiplied by the money factor. The total monthly payment is the sum of both charges plus any applicable taxes.

What is a money factor in a lease?

A money factor is a decimal number used to calculate the finance charge on a lease. It functions similarly to an interest rate. To convert a money factor to an equivalent annual percentage rate (APR), multiply it by 2,400. For example, a money factor of 0.00125 equals a 3% APR. Lower money factors mean lower finance charges.

What is residual value?

Residual value is the estimated worth of the vehicle at the end of the lease term. It is usually expressed as a percentage of the MSRP. A higher residual value means lower depreciation during the lease, resulting in lower monthly payments. Residual values are set by leasing companies and vary by vehicle make, model, and lease term.

Should I lease or buy a car?

Leasing typically offers lower monthly payments and lets you drive a newer vehicle every few years, but you never build equity and face mileage restrictions. Buying costs more monthly but you own the vehicle outright after the loan is paid off. Leasing may be better if you prefer new cars and drive average miles; buying is often better long-term financially.

Lease Calculator

Vehicle / Equipment Price ($)

Residual Value ($)

Money Factor

Equivalent APR: 3.00%

Lease Term (months)

Down Payment ($)

Trade-In Value ($)

Fees (taxes, registration, etc.) ($)

Monthly Payment

$0.00

Total Lease Cost

$0.00

Total Interest (Finance Charges)

$0.00

Total Depreciation

$0.00

Payment Breakdown

Understanding Auto and Equipment Leases

Leasing a vehicle or piece of equipment allows you to use the asset for a fixed period while paying for only the depreciation that occurs during that time, plus finance charges. Unlike buying, you return the asset at the end of the term unless you exercise a purchase option. This structure typically produces lower monthly payments compared with a loan for the same asset, making leasing attractive for people who want to drive a newer car every few years or for businesses that need equipment without tying up capital.

The two main components of a lease payment are the depreciation charge and the finance charge. The depreciation charge equals the net capitalized cost minus the residual value, divided by the number of months in the lease. The finance charge equals the sum of the net capitalized cost and the residual value, multiplied by the money factor. The money factor is the leasing industry's equivalent of an interest rate; multiply it by 2,400 to convert it to an approximate annual percentage rate.

Your net capitalized cost is the negotiated price of the vehicle minus any down payment, trade-in credit, or rebates, plus any fees rolled into the lease. A higher down payment or trade-in reduces the capitalized cost, which lowers both the depreciation and finance portions of your payment. Choosing a vehicle with a high residual value also helps, because you are paying for less depreciation. Before signing any lease, compare the money factor to current auto-loan rates, read the mileage allowance and excess-wear provisions carefully, and confirm whether you can transfer or terminate the lease early without excessive penalties.

Financial Disclaimer: This calculator provides estimates for informational purposes only. Actual lease payments may vary based on your credit score, dealer fees, taxes, and other factors. This is not financial advice. Consult a qualified financial professional before making leasing decisions.

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Understanding Auto and Equipment Leases

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