The payment calculation
How a car lease payment is calculated
A standard lease estimate has two main parts: depreciation and a rent charge. Depreciation spreads the difference between adjusted capitalized cost and residual value across the lease term. The rent charge applies the money factor to the adjusted capitalized cost plus residual value. Tax is then added according to the rate entered here.
Formula reference: Southeast Toyota Finance lease calculations. Disclosure reference: CFPB Regulation M payment-calculation requirements.
Read the worksheet
MSRP, capitalized cost and residual value
MSRP is used to calculate the residual value, while the negotiated vehicle price helps determine the gross capitalized cost. Fees can be capitalized, and rebates, trade credits or a cash capitalized-cost reduction can lower the adjusted capitalized cost.
- Residual value: MSRP multiplied by the residual percentage.
- Gross capitalized cost: agreed vehicle price plus any fees added to the lease.
- Adjusted capitalized cost: gross capitalized cost minus rebates, credits and cash reductions.
The CFPB defines adjusted capitalized cost as the amount used by the lessor to calculate the base periodic payment. Use the exact figures from the lease worksheet rather than guessing from an advertised monthly payment.
Definitions: CFPB Regulation M definitions.
Financing portion
Money factor and the approximate interest-rate equivalent
The money factor is the decimal used to calculate the lease rent charge. Multiplying it by 2,400 gives a common approximate annual rate equivalent—for example, 0.00250 is approximately 6.00%.
This conversion is a comparison shortcut, not a disclosed loan APR. A lease and a loan use different payment structures and disclosures.
Worked example
A $45,000 vehicle negotiated to $42,000
For a 36-month lease with a 60% residual, the residual value is $27,000. With a 0.00250 money factor and no additional reductions or fees, monthly depreciation is about $416.67 and the rent charge is $172.50. At a 7% monthly tax rate, the estimated payment is $630.41.
The example excludes registration, security deposits, acquisition or disposition fees and excess-mileage charges. Add the amounts from the actual quote for a closer estimate.
Look beyond the monthly number
Estimate the full cost of the lease
The calculator totals the entered cash reduction, upfront charges, scheduled monthly payments, disposition fee and expected excess-mileage charge. Actual contracts may also include registration, security deposits, wear charges, purchase-option fees or other items.
Tax treatment differs by state and locality. Some jurisdictions tax the monthly payment, while others apply tax differently. This calculator applies the rate only to the monthly depreciation and rent charge; compare the result with the lessor’s written disclosure.