A lease payment isn’t a loan payment shrunk down — it funds two separate things: the vehicle’s expected loss of value over the lease, and a finance charge computed from a “money factor” instead of a stated interest rate.
How it works
The depreciation portion is simply the cap cost minus the residual value, spread evenly over the term. The rent charge (the finance portion) is the money factor multiplied by the sum of the cap cost and residual value — the Federal Reserve’s own worked example confirms this exact mechanism.
What this does not include
This doesn’t include acquisition fees, disposition fees, or mileage-overage charges, all of which are common in real lease contracts but aren’t part of the base monthly payment formula itself.
How to use this calculator
- Enter the negotiated (capitalized) cost and the residual value from the lease offer.
- Enter the money factor and term.
- Add your local sales tax rate if your state taxes lease payments.
Frequently asked questions
What’s a “good” money factor?
Multiplying the money factor by 2,400 gives an approximate equivalent APR — useful for comparing a lease offer against loan financing on the same terms.
Why does a higher residual value lower my payment?
A higher residual means less of the car’s value needs to be paid off during the lease — it directly shrinks the depreciation portion of the payment.
Is leasing cheaper than buying?
Not necessarily — leasing typically has a lower monthly payment but builds no equity, and this calculator only computes the payment itself, not a full lease-versus-buy comparison.
