Check a lease quote the way the dealer’s computer does. Enter the sticker price, the price you negotiated, your down payment, the residual percentage and the money factor (or an APR), pick the term and your sales tax, and see the payment broken into depreciation and finance charge, the money factor as an APR, and what the whole lease costs.
Monthly lease payment
$551.76
$515.67 before tax
Depreciation part
$366.67
($36,400 − $23,200) ÷ 36
Finance (rent) charge
$149.00
≈ 6.00 % APR
Total cost of lease
$21,863
36 payments + down payment
Residual value $23,200 is what the car is assumed to be worth at lease end (and your buyout price). Money factor × 2,400 = APR. A larger down payment lowers the monthly figure but is lost if the car is totaled or stolen — most advisers suggest keeping it small.
📌 Standard closed-end lease formula. Not included: the first month due at signing, registration, disposition fee at lease end ($300–500), excess mileage (typically 15–25¢ per mile over 10,000–15,000 a year) and wear charges. Tax rules vary: most states tax each payment, a few tax the full price up front.
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The lease formula, step by step
net cap cost = negotiated price + fees − down payment
residual = MSRP × residual %
depreciation per month = (net cap cost − residual) ÷ months
rent charge per month = (net cap cost + residual) × money factor
Worked example: MSRP $40,000, negotiated $37,500, fees $900, $2,000 down → net cap cost $36,400. Residual 58 % = $23,200. Depreciation ($36,400 − $23,200) ÷ 36 = $366.67; rent charge ($36,400 + $23,200) × 0.0025 = $149.00; base payment $515.67, with 7 % tax $551.76. Over 36 months plus the down payment the lease costs about $21,900.
Two parts plus tax. Depreciation = (net capitalized cost − residual value) ÷ months, where the net cap cost is the negotiated price plus fees minus your down payment. Finance (rent) charge = (net cap cost + residual value) × money factor. For a $40,000 car negotiated to $37,500 with $900 fees, $2,000 down, 58 % residual ($23,200), money factor 0.0025 and 36 months: net cap cost $36,400, depreciation $367 + rent charge $149 = $516, or $552 with 7 % tax.
The lease equivalent of an interest rate, written as a small decimal such as 0.00250. Multiply by 2,400 to get the APR: 0.0025 × 2,400 = 6 %. Dealers sometimes quote it as “2.5” (meaning 0.0025). A good money factor tracks new-car loan rates; anything above the manufacturer’s published buy rate is dealer markup you can negotiate.
Residual is set by the leasing company as a percentage of MSRP and is not negotiable, but it decides most of the payment: a higher residual means less depreciation to pay. 55–65 % after 36 months is strong (popular Toyota, Honda, Subaru, luxury SUVs), 45–50 % weak (many EVs, large sedans). Shorter terms and lower mileage allowances raise the residual.
As little as possible. A cap-cost reduction lowers the monthly payment but is simply prepaid depreciation, and if the car is totaled in month two the insurance settlement goes to the leasing company while your down payment is gone. Pay only the first month, fees and taxes at signing if you can; negotiate the price instead.
Per month, usually yes — a lease pays only for the depreciation during the term, so $552 a month here versus about $755 to finance the same $37,500 car (with tax, $2,000 down) over 5 years at 7 %. Over the long run buying wins if you keep the car well past the loan, because a leaser pays for the steepest depreciation years again and again. Leasing suits people who want a new car every 2–3 years, drive under 12,000–15,000 miles and value predictable costs.