Frequently Asked Questions About Car Lease Calculations

Car leasing involves more math than buying a car, or buying with a loan. We frequently see common questions about the math of leasing that we’ll answer here.

1. How do I calculate car lease payments?

To calculate monthly payments for a car lease, you must know the amount being financed in the lease (Capitalized Cost), the lease-end Residual Value, finance rate (Money Factor), and number of lease months (Term). You can then calculate the payment by using the Standard Lease Formula or by using our online Lease Calculator.

The formula is as follows:

Payment = (Cap Cost – Residual) ÷ Term    +    (Cap Cost + Residual) x Money Factor

Example: If Cap Cost = $25,000, Residual = $14,000, Term = 36 months, and Money Factor = .0005

Payment = (25,000  –  14,000) ÷ 36   +   (25,000 + 14,000) x .0005 = 11,000 ÷ 36  +  39,000 x .0005 = 305.55 + 19.50 = $325.05

2. How do I calculate my Money Factor if it’s not shown in my lease contract?

You use the Lease Charge (often called Rent Charge) amount shown in your contract, which is the total of all finance charges during your lease.  Here’s the formula:

Money Factor = Lease Charge ÷ Term ÷ (Cap Cost + Residual)

Example: If Cap Cost = $25,000, Residual = $14,000, Lease Charge = $702, and Term = 36 months

Money Factor = $702 ÷ 36 ÷ (25,000 + 14,000) = 19.50 ÷ 39,000 = .0005

3. If I’m allowed 12,000 miles a year in my 39 month lease, what is the total number of miles I am allowed?

Being allowed 12,000 a year means 1000 miles per month (12,000 miles ÷ 12 months = 1000 miles/month). Therefore the total miles for the 39 month lease is:

Total Miles =  39 months x 1000 miles/month = 39,000 miles

4. If I’m allowed 39,000 miles, total, in my lease, but I’m 2000 over when I return my car, how much will I owe?

It depends on the per-mile fee specified in your lease contract. The fee for most lower priced cars is $0.15 per mile, and $0.20 per mile for cars costing from $30,000 up to about $50,000. Let’s assume our lease contract specifies $0.20 per mile. Therefore the following calculation gets our lease-end excessive mileage penalty charge:

Mileage Charge = 2000 miles x $0.20 per mile = $400

See our online Lease Mileage Calculator, which makes this calculation much easier.

5. My lease payment is $300 a month. What will be my total payment after sales tax is added?

Sales tax is applied to each monthly payment (in most states) at the usual sales tax rate in your state/county/city. Let’s say the sales tax rate in 6.0%. Therefore your monthly payment would be:

Payment = $300 + ($300 x .06) = $300 + $18 = $318 a month

6. Sales tax is charged differently in my state. It’s charged on the sum of all lease payments. What’s my tax?

Again let’s assume your tax rate is 6.0% and your base lease payment is $300 a month for 36 months. The total tax is calculated as:

Total Tax = ($300 x 36) x .06 = $10,800 x .06 = $648

7. My state is even different than those above. Sales tax is charged on the price of the vehicle plus any fees added. How does that work?

Let’s say the negotiated price of the vehicle is $25,000 and a $595 lease acquisition fee is added. We’ll assume again that the tax rate is 6.0%.

Total Tax = ($25,000 = $595) x .06 = $25,595 x .06 = $1536

8. What if I have a trade vehicle when I lease my new car?

Of course, the price of the leased vehicle is reduced by the value of the trade-in and you may get tax credit as well, depending on your state tax laws.

Let’s assume a trade-in vehicle worth $8000. In the above example, the $25,000 price of the lease car is reduced by $8000 and a sales tax credit is applied at the 6.0% rate. And we’ll assume you get tax credit for your trade vehicle. So lets’ do the math:

Total Tax = ($25,000 – $8000 + $595) x .06   –   ($8000 x .06) = $17,595 x .06   –   $8000 x .06 = $1055.70 – $480 = $575.70

9. How do I convert money factor to equivalent APR interest rate? Or interest rate to money factor?

It’s a simple calculation:

Interest Rate = Money Factor x 2400

or if you have Interest Rate and want Money Factor:

Money Factor = Interest Rate ÷ 2400

Example: If Money Factor = .0005

Interest Rate = .0005 x 2400 = 1.2% APR

10. How do I calculate Residual Value if I know Residual Percentage?

Residual Percentage is applied to MSRP sticker price, not negotiated lease price.  Therefore assuming a $20,000 sticker price and a Residual Percentage of 50%, the calculation is as follows:

Residual Value = $20,000 x .50 = $10,000