Calculate monthly lease payments for a car or property. Compare leasing vs buying, and see the full cost breakdown over the lease term.
A car lease payment has two main components: the depreciation fee (covering the vehicle's loss in value during the lease) and the finance charge (the interest on the money used). The depreciation fee is calculated by subtracting the residual value from the adjusted capitalized cost, then dividing by the number of months. The finance charge is calculated by multiplying the sum of the adjusted cap cost and residual value by the money factor.
| Factor | Leasing | Buying |
|---|---|---|
| Monthly Payment | Lower | Higher |
| Ownership | No — you return the car | Yes — you own it outright |
| Mileage | Limited (typically 10–15k/yr) | Unlimited |
| Customization | Restricted | Full freedom |
| Long-term cost | Higher (perpetual payments) | Lower (no payment after payoff) |
| Newest technology | Easy to upgrade every 2–3 yrs | Keep the same car longer |
| Wear & tear | Fees for excess wear | No restrictions |
The money factor is the interest rate used in car leases, expressed as a small decimal (e.g. 0.00125). To convert to an APR percentage, multiply by 2,400: 0.00125 × 2,400 = 3% APR. A lower money factor means lower lease payments. Money factors are set by the manufacturer's finance arm and can sometimes be negotiated.
Residual value is the estimated worth of the vehicle at the end of the lease term, expressed as a percentage of the MSRP. A higher residual value means lower monthly payments because you're only paying for the depreciation from the cap cost down to the residual — not the full car value. Residuals are set by the manufacturer and are not negotiable.
Financially, a large down payment on a lease is generally not recommended. Unlike a loan, if the vehicle is stolen or totaled, your down payment is not refunded by GAP insurance. It's better to keep your cash and make slightly higher monthly payments, or negotiate a lower cap cost instead.
A capitalized cost reduction (cap cost reduction) is any upfront payment that reduces the amount being financed in the lease — including down payments, rebates, and trade-in credits. Reducing the cap cost lowers your monthly payment but has the same risk as a down payment if the vehicle is a total loss.
Yes — several elements of a car lease are negotiable: the capitalized cost (sale price), the acquisition/dealer fees, and sometimes the money factor. The residual value is typically set by the manufacturer and is not negotiable. Negotiating even $500–$1,000 off the cap cost can meaningfully reduce your monthly payment over a 36-month lease.