Estimate your monthly lease payment and use it as a benchmark when shopping for your best deal.
March 14, 2017
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Use this lease calculator to estimate your monthly payment to:

• Prepare yourself to negotiate with a dealer
• Choose the best car you can afford within your budget
• Customize your lease for the right loan term and drive-off payment
• Check quotes from different salespeople

Below is a guide to using the lease calculator and the best way to interpret the results.

#### 4 KEY LEASE FIGURES

The calculation that produces a monthly lease payment contains many figures. Some you can negotiate, others are set by the lender, and others are up to you. However, these four figures have the biggest impact on your monthly payment:

• The negotiated sale price of the car
• The resale value of the car, which is its predicted value at the end of the lease
• The interest rate
• The length of the lease

Even though you’re not buying the car, you can negotiate the sale price to lower your monthly payment.

Sale price of the car: Even though you’re not actually buying the car, you can negotiate the sale price to lower your monthly payment. For an estimate, look up the current market value of the car on one of the pricing guides, such as Edmunds.com’s True Market Value.

Resale value: This is also called the “residual value.” It’s what the car is worth at the end of the lease and it’s set by the lender, so you can’t negotiate it. However, it’s smart to lease a car with good resale value. Here’s why: If a car is worth \$30,000 new, and its residual value after three years is \$15,000 (or 50%) you have essentially used \$15,000 of value. But if that same car is worth \$18,000 (60%) after three years, you have used only \$12,000 of its value. With a higher resale value, you’re on the hook for less since you pay only for the value you use.

Eventually, you’ll get the specific residual value from the dealer. But for now, use a resale value between 50% and 58% for most cars.

Interest rate: In a lease calculation, the interest rate is called the “lease factor” or “money factor.” In a monthly lease calculation, the interest rate is converted to a decimal so interest on the monthly payment can be computed. So 3% interest would be written as 0.00125. (You can convert an interest rate to a decimal by dividing it by 2,400: 3/2,400 = 0.00125. Conversely, you can convert a lease factor to an interest rate by multiplying it by 2,400.)

The interest rate you get in a lease contract is based on your credit score.

The rate you get is based on your credit score. Different lenders (leasing companies) will offer different interest rates. Use a rate between 2% and 5% if you have strong credit, between 6% and 9% for average credit and between 10% to 15% for poor credit.

Length of the lease: Car leases usually last 36 months, which is how long most extended warranties last. This means you don’t have to pay extra for extended coverage, and your cost of maintenance will be low since the car is new. However, you can find leases for only 24 months and even 38 or 40 months. Don’t be talked into leasing for four or five years. You could be on the hook for more service costs, buying new tires and costly repairs.

#### OTHER LEASE Components

There are other factors that alter the monthly payment, some of which you choose and others that the leasing company sets.

Making a higher payment upfront will reduce your monthly payment but it will also reduce your cash flow for other things.

Drive-off fees: This is similar to a down payment when you buy a car. It’s made up of several fees and what is sometimes called a “capitalized cost reduction.” You can select any drive-off amount you want, all the way down to zero. We recommend that you start a lease with a drive-off payment of about \$1,000. Making a higher payment upfront will reduce your monthly payment but it will also reduce your cash flow for other things, such as investments. Also, unlike when you buy a car, you’re not building equity in the vehicle.

Cash rebates and incentives: When a car isn’t selling quickly enough, the manufacturer may offer rebates and incentives, which can reduce the monthly payment of a lease. Often, these are simply called “lease specials” and can greatly reduce your payment. Websites such as Edmunds.com track lease offers for car shoppers.

Included miles: Most lease contracts allow 12,000 miles a year. However, some leases now allow only 10,000 miles, or fewer, which provides less value and should result in a lower monthly payment. Always check to see how many miles are included with the lease.

Sales tax: One of the attractions of leasing is that you pay sales tax only on the amount of the car’s value that you use, not the total purchase price. So if sales tax is 9% and the car costs \$30,000, the buyer pays \$2,700. Leasing the same car for 36 months, with a \$15,000 residual value, the sales tax is \$1,350 and is paid in smaller amounts (\$37.50) each month.

#### USING THE CALCULATOR

Now that you have all the information you need, you can estimate your monthly payment. Plug in the figures that best suit your financial situation and lifestyle. Input different drive-off amounts and see how it changes the monthly payment. But remember not to put too much money down, because that defeats one of the advantages of leasing, which is to preserve cash flow.

One scenario

Here’s how to estimate the monthly payment on a midsized economy sedan with a sticker price of \$33,000.

1. By checking pricing guides on Edmunds.com, Kelley Blue Book or TrueCar, you find you could buy the car for \$30,000, so put that in the box marked “Price of Car.”
2. Decide how much you want to budget for a down payment, or drive-off fees. We recommend no more than about \$1,000. Enter that in the “Down Payment” field.
3. You think the resale value of this car is average, so you multiply the \$30,000 by 0.55 and put the result, \$16,500, in the box marked “Car’s Resale Value at End of Lease.”
4. Enter your local sales tax. If you’re leasing in another state, enter its sales tax. For this example we’ll use 9%.
5. Put in the interest rate you think you’ll qualify for based on your credit history. If you don’t know your credit score, this is a good time to check it. Enter the interest rate as a whole number, not a decimal. Here, we’ll use 3%.
6. In the “Number of Months” box, enter how long you want the lease to last. Remember, 36 months is the sweet spot for leasing. That’s what we’ll use. Shorter leases — 24 months — are OK, but the payments will be higher.

And the result is…

On the right hand side of the calculator, you’ll see that the monthly lease payment is \$440.47. That includes the sales tax of \$36.37 and \$56.88 in interest.

#### HOW TO USE THE RESULTS

Using a lease calculator gives you a benchmark monthly payment to use as you shop for your best deal. If you follow our quick guide to leasing, you’ll request lease quotes from local dealers. With an estimated monthly payment from the lease calculator, you’ll know a good deal when you see one.

When you compare quotes, make sure the monthly payment is based on the same terms.

Remember, when you compare quotes, make sure the monthly payment is based on the same number of months, down payment, included miles and interest rate. When these figures change, the monthly payment will, too.

You can also use the lease calculator to double-check the dealer’s figures as you gather quotes. Ask your salesperson for a breakdown of all the figures, especially the interest rate and residual value, that the quote is based on. Plug in the numbers and see what you come up with.

In some cases, you might be pleasantly surprised to get quotes from dealers that are well below the number estimated using the calculator. This could be due to a discounted sale price by the dealer, special financing from the manufacturer or a stronger residual value than you estimated. Often, manufacturers play with the leasing formula to offer a discounted monthly payment. This is sometimes referred to as a “subvented lease.”

#### REMEMBER, IT’S JUST AN ESTIMATE

Because there are so many components in a lease contract, your results will vary. Don’t expect to calculate your lease payment to the dollar. But if you base your calculation on good information, you can get close to the right amount. Then, if a dealer offers you an even better deal, you can jump on it.