The Complete Guide to Auto Leasing
Determining whether an auto lease is a good deal requires looking past just the monthly payment. Dealerships often structure leases to hide the true cost of financing and depreciation. Our free Lease Calculator breaks down every element of a car lease so that you understand exactly what you are paying for over the term.
The Mechanics of a Car Lease
When you buy a car, you are paying for the entire value of the vehicle. When you lease, you are only paying for the depreciation that occurs while you drive it, plus a finance charge and taxes.
Understanding the "big three" variables of leasing is the key to negotiating a better deal:
1. Capitalized (Cap) Cost: Think of this as the purchase price. Negotiate this number exactly as if you were buying the car for cash. A lower cap cost directly reduces the amount of depreciation you must pay for.
2. Residual Value: This is predetermined by the leasing company and represents what the car will be worth at the end of the lease. A higher residual value means less depreciation, which results in a lower monthly payment.
3. Money Factor: This is the interest rate on the lease. It's normally presented as a small decimal (e.g., 0.00125). Multiply it by 2400 to get the APR (in this case, 3.0%). This is highly negotiable based on your credit score.
Breaking Down Your Monthly Payment
The interactive chart output by our calculator shows your monthly payment split into three distinct categories:
- Depreciation: The core of the lease—the vehicle's drop in value.
- Finance Charge: The rent charge for borrowing the leasing company's money.
- Taxes: The applicable local sales tax applied to your monthly payment.
Why Down Payments Are Risky on a Lease
It might be tempting to put $5,000 down on a lease to secure a $250 monthly payment. However, if that vehicle is totaled or stolen three weeks later, your insurance company reimburses the leasing company for the vehicle's value, but your $5,000 down payment is almost never recovered. It is generally advised to put zero down on a lease and roll the costs into the monthly payments.
By fully understanding the structure of your lease with this calculator, you can confidently walk into the dealership, negotiate the cap cost and money factor, and drive away knowing you got a fair deal.