A Simple Way to Determine if a Lease Deal is Good or Bad

We often get the question, “What is the 1% rule or method of quickly evaluating a car lease deal?”

To determine if a car lease payment is a good deal, it’s best to examine each of the major components – cap cost, residual, and money factor – separately. However, in many cases you may not have this detailed information and must do the evaluation using other methods.

You can use our Lease Deal Calculator for this purpose, or the more precise Lease Evaluator in our Lease Kit.

But you aren’t always at a computer and may not have access to our web site at the moment you need to size up a lease deal. We’ll show you how to get a quick rough evaluation with the simple math calculator that we all have on our cell phones.

The One Percent Rule

The so-called “one-percent” method of sizing up a lease offer is based on the concept of dividing the monthly payment (not including sales tax, if any) by the MSRP sticker price of the car. If the result is very close to 1%, or less, the better the deal.

This method is designed for standard leases of 36 months and 10,000-12,000 annual milage allowance. To evaluate other leases, use our Lease Deal Calculator.

Let’s look at an example.

Say the car you want to lease has a sticker price of $30,000 and the offered monthly payment (without sales tax) is $290 (with no down payment). We divide 290 by 30,000 to get .0096, which is .96%. It’s less than 1%, which makes this an outstanding deal — not very common.

Looking at another example for the same $30,000 car but with a monthly payment of $375, we divide 375 by 30,000 to get .0125 which is 1.25% – still pretty close to 1% and an excellent deal, although not outstanding.

A payment that is any higher than $390 (1.30%) in this example would not be a great deal, possibly just average or poor.

Using the One Percent Rule – Some Details

In order for the 1% Rule to be used most effectively, we might need to make some adjustments to the payment number we use in the calculation.

First, the monthly lease payment amount should not include any sales tax. In some states, sales tax is added to each payment. If the state and local sales tax rate is, say 6%, and your lease payment is $300, then you total payment each month is $300 + $18 tax. So if you know for sure that the payment you’ve been quoted includes sales tax, then simply divide by 1.06 (in this example) to get the base payment amount.

If your state has no sales tax or if it’s calculated as an up-front charge and you’ll pay it in cash, no problem. If it’s calculated as an up-front charge and included in the financed part of your lease, it’ll distort your calculation a bit but there’s nothing you can do if you can’t get the dealer to quote you a payment that doesn’t include the tax. Most advertised lease deals do not include taxes and fees that are calculated and added to the deal later.

Second, if the lease deal you’ve seen or are being quoted has a down payment (cap cost reduction), you must factor it in –by calculating your effective monthly payment. Here’s how.  Simply divide the down payment by the lease term (lease months), and add that amount to the real monthly payment. For example, if your 36 month lease deal has a real monthly payment of $300 and a $1000 down payment (cap cost reduction), divide $1000 by 36 to get $42. Now, $300 + $42 = $342 which becomes your effective monthly payment that you use in the One Percent Rule calculation described above.