Here is a Simple Car Leasing Formula to Determine the Monthly Lease Price

The secret to leasing a new car is knowing the basics. Familiarizing yourself with common leasing terms such as the residual value, capitalized cost reduction, and money factor will prevent car dealers from overcharging on your monthly lease payments.

We are not saying that car dealerships are dishonest when it comes to offering lease payments. It's just that there are a lot of complications in the leasing contract. There are certain entries or values that the consumer might find hard to understand. This, in turn, leaves the consumer vulnerable to dishonest car dealers that are willing to earn an extra buck.

Here is a simple car leasing formula that will help you to arrive at the monthly lease price on any type of car. Remember that not all new cars are available for lease, and the lease price will vary according to your place of residence. To know more about the latest lease offers in your zip code, you should get a free new car lease quote to gain updated lease prices and secret lease offers near you.

Here is a Simple Lease Formula to Help You Get Started

The monthly lease price is made up of 3 parts:

1. Depreciation fee.

2. Finance fee.

3. Sales tax.

Determine the Depreciation Fee

The depreciation fee can be obtained if you use the formula:

Net Capitalized Cost - Residual Value of the Car / Lease term

Let us assume that you want to lease a car with an MSRP of $25,000 for 36 months. The car has a residual value of $14,000 and you negotiated the price down to $23,500. The down payment is $2,000. Using the formula above, the depreciation fee is $23,500 - $2,000 - $14,000 / 36 months, or $208/month.

Note: the down payment should be deducted from the negotiated selling price to arrive at the net capitalized cost.

Determine the Finance Fee

The finance fee can be determined by using the formula:

Net Capitalized Cost + Residual Value x Money Factor

Continuing with example above, let us say that the money factor rate of the car lease is 8%, or 0.00334 (if the car dealer gives you the APR rate of 8%, simply divide it by 2400 to get the money factor rate). Using the formula above, the finance fee is $21,500 + $14,000 x 0.00334, or $118.60.

Simply add the depreciation fee and the finance fee to arrive at a monthly lease price of roughly $326/month (sales tax not included).

Of course, if you can further negotiate the selling price, make a larger down payment, and negotiate a lower money factor rate, you can expect to pay lower than in our example stated above. Also keep in mind that the lease price will also vary depending on the type of car you want to lease. If you choose a more expensive sedan or SUV, then your lease price will be higher.

You should take the time to find updated new car lease prices so can have a chance to compare lease offers from multiple car dealers near your area.