﻿ How to Calculate a Basic Auto Lease

# How to Calculate a Basic Auto Lease

#### Gathering the Information

1.

Find the manufacturer's suggested retail price (MSRP) of the car from a reputable source such a Edmunds or Kelly Blue Book.

2.

Next, contact the bank or credit union you are using for financing and get your interest rate for the lease. Divide the rate by 2,400 to calculate the money factor.

3.

Decide how long you will keep the car and choose the length of the lease. The standard length of most leases is 36 months.

4.

Ask the bank, credit union or finance company what the residual value on the car will be. The residual value is what the car will be worth at the end of the lease and is a percent of its current value.

#### Working the Numbers

1.

Calculate the value used. Let's say the car's current MSRP is \$15,000 and the residual value is 52 percent. So the car will be worth \$7,800 at the end of the lease, meaning you will use \$7,200 of the car's value. Dividing the \$7,200 by the standard length of most leases, which is 36 months, results in a \$200 payment per month for the car's value used.

2.

Calculate the money factor. Take the interest rate and multiply it by the amount of value you are using during the lease. So if the interest rate is 5\%, divide it by 2,400 to get the money factor. (Do not change 5\% into a decimal. So the equation would be 5/2400.) The money factor here would be .002.

3.

Calculate the monthly lease payment. Add the car's current value (\$15,000) to its value at the end of the lease (\$7,800) and multiply it by the money factor (.002) to get \$45.60. Add \$45.60 to the \$200 to get the approximate monthly lease payment of \$245.60.

Leasing a car is an important decision. Car companies often encourage leases because of their profitability to the company. If using the car for business, the lease cost can often be tax deductible according to tax experts H&R Block. What most buyers may not know is how lease costs are calculated and as a result are surprised when the total cost is revealed. It is therefore important to know how the final cost is arrived at.