See exactly what builds your lease payment.
Enter the deal once and watch the whole lease break apart: the depreciation you pay for, the rent charge hidden inside the money factor, the tax on top, and the total cost of driving away before you ever sit at the dealer's desk.
Your lease
Your lease at a glance
Where the payment comes from
Your monthly payment, split
What you have paid over the term
Key numbers
How the residual moves your payment
A higher residual value means the car is worth more at lease end, so you pay for less depreciation. Same deal, different residual assumptions.
| Residual | Residual value | Depreciation | Finance charge | Monthly payment | Total lease cost |
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How car leasing works
How Car Lease Payments Are Calculated
Lease payments consist of two components: a depreciation charge and a finance charge. The depreciation charge covers the difference between the vehicle's capitalized cost and its residual value at the end of the lease, divided by the number of months. The finance charge is based on the money factor, which is roughly the annual interest rate divided by 2,400. Sales tax is then applied to the sum of these two charges, though some states tax the full vehicle price instead of just the monthly payment.
Understanding Money Factor and APR Equivalent
The money factor is a decimal number used in lease calculations that represents the financing cost. To convert a money factor to an equivalent APR, multiply it by 2,400. For example, a money factor of 0.00125 equals a 3% APR, while 0.00250 equals 6% APR. When comparing lease offers, always convert the money factor to APR so you can compare it directly with traditional loan interest rates and evaluate whether the financing cost is competitive.
Leasing vs Buying: Which Is Right for You
Leasing offers lower monthly payments and the ability to drive a new car every few years, but you build no equity and face mileage restrictions typically capped at 10,000 to 15,000 miles per year. Buying costs more monthly but gives you full ownership once the loan is paid off. Financially, buying and holding a vehicle for 8-10 years is usually cheaper in the long run, while leasing can make sense if you value always having the latest safety features and want predictable maintenance costs under warranty.
How to Negotiate a Better Lease Deal
Focus on negotiating the capitalized cost (selling price) of the vehicle, as this directly reduces both your depreciation charge and finance charge. Research the money factor for your credit tier through online lease forums before visiting the dealer. Ask about manufacturer lease incentives and loyalty bonuses that can lower your effective cost. Avoid large down payments on leases because if the vehicle is totaled or stolen, gap insurance covers the lease balance but you lose your down payment entirely.
Common questions
How is a car lease payment calculated?
A lease payment has three components: depreciation (vehicle price minus residual value, divided by term), a finance charge (vehicle price plus residual, multiplied by the money factor), and sales tax applied to the monthly total.
What is a money factor and how does it relate to APR?
The money factor is the lease equivalent of an interest rate. Multiply it by 2,400 to get the approximate APR. A money factor of 0.00125 equals about 3% APR. Lower money factors mean less you pay in finance charges.
Should I put money down on a lease?
Financial experts generally advise against large down payments on a lease. If the car is totaled or stolen, you lose that down payment. Instead, negotiate a lower selling price or money factor to reduce your monthly payment.
What is residual value and why does it matter?
Residual value is the estimated worth of the vehicle at lease end. A higher residual means lower depreciation and therefore a lower monthly payment. Vehicles with strong resale value (Honda, Toyota, Lexus) typically have higher residuals.
Estimates for planning only. Actual lease payments depend on your exact money factor, residual, fees, acquisition and disposition charges, and how your state taxes leases. Confirm the numbers on the lease worksheet before you sign.