How it works

A useful distinction

Spread upfront cash across the term

A 3,600 upfront cost reduction over 36 months adds 100 per month to your comparison of cash outlay. Add it to the quoted payment when comparing leases with different upfront amounts.

Understanding a lease payment estimate

A lease payment combines the modeled depreciation and financing charges, with the entered taxes and fees where supported. Residual value describes the vehicle value assumed at the end of the lease, not cash you automatically receive. Compare offers over the same lease term and inspect upfront amounts separately. Mileage charges and end-of-lease conditions require the actual lease agreement.

Lease payment: formula and assumptions

Monthly depreciation = (net cost−residual)/months; rent charge = (net cost+residual)×money factor.

A typical US auto lease structure is assumed. Jurisdictions may tax leases differently.

Lease price from payment: formula and assumptions

Adjusted cost = (payment/(1+tax) + residual/N − residual×money factor)/(1/N + money factor).

Assumes tax on the monthly lease payment. Add cost reduction and trade credit to recover the selling price. Contract fees and tax treatment can differ.

Worked example

Reference example currency: USD. These fixed examples do not change with your calculator preferences.

Using the Lease payment example:

Inputs

Capitalized cost ($): 35000
Capitalized-cost reduction ($): 3000
Residual value ($): 20000
Lease term (months): 36
Money factor: 0.0025
Payment tax rate (%): 6

Method

Monthly depreciation = (net cost−residual)/months; rent charge = (net cost+residual)×money factor.

Result

Example result

Monthly payment: $491.13

Monthly depreciation: $333.33

Monthly rent charge: $130.00

Total scheduled cost: $20,680.80

These are illustrative inputs. Change the values to explore a different scenario.

Formula references

References explain the underlying methods; they do not imply endorsement or individual professional review of Finflo.

Common questions

What makes up the modeled lease payment?

It combines depreciation over the lease term with a rent charge based on adjusted cost, residual value and the money factor.

Is residual value the same as the amount I pay each month?

No. Residual value is the modeled vehicle value at lease end. It helps determine depreciation and may affect an end-of-lease purchase.

Prepared by Finflo. See our methodology and editorial policy. Read the relevant professional-advice limitations.

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