How to Calculate Car Lease Payments: A Complete Guide

Understanding how car lease payments are calculated is crucial to getting a fair deal at the dealership. Unlike a traditional auto loan, a lease payment is composed of three main parts: depreciation, finance fees, and sales tax.

Depreciation represents the value the vehicle loses during your lease term. It is calculated by taking the capitalized cost (negotiated price plus fees) and subtracting the residual value (estimated value at lease-end). This total depreciation is divided by the lease term in months to get the base monthly depreciation payment.

The second part is the rent charge, which is the cost of financing. It is calculated using the money factor: (Capitalized Cost + Residual Value) * Money Factor. Adding the monthly depreciation and rent charge together gives you the pre-tax lease payment, onto which local sales tax is applied.

By knowing these formulas, you can negotiate the capitalized cost and verify the dealer's calculations. Our Car Lease Estimator automates this entire formula, letting you see exactly how changes in MSRP, money factor, and down payment alter your monthly cost.