The lease payment formula
Depreciation = (adjusted cap cost − residual) ÷ months
Rent charge = (adjusted cap cost + residual) × money factor
Payment = (depreciation + rent charge) × (1 + tax rate)
Adjusted cap cost is the negotiated price plus fees, minus your down payment and trade-in. Example: $36,000 price + $995 fees − $2,000 down = $34,995. With a 57% residual on a $38,000 MSRP ($21,660), 36 months and a 0.00250 money factor, depreciation is $370.42 and the rent charge is $141.64, so the payment is about $512.05 before tax.
Lease vs buy
- Leasing gives lower payments and a new car every few years, but you have mileage limits (often 10,000 to 15,000 miles a year), wear-and-tear charges and nothing to show at the end.
- Buying costs more each month, but you own the car once the loan is paid and can drive as much as you like.
Compare with financing in the car loan calculator, and work out fuel costs with the gas cost calculator.
Last reviewed October 2026.
Frequently asked questions
How is a car lease payment calculated?
A lease payment has two parts. The depreciation fee is the adjusted price minus the residual value, divided by the number of months. The rent charge (finance fee) is the adjusted price plus the residual, times the money factor. Sales tax is then added in most states.
What is a money factor?
The money factor is the interest rate on a lease, written as a small decimal like 0.00250. Multiply it by 2,400 to get the approximate APR: 0.00250 × 2,400 = 6%. You can enter either one in this calculator.
What is residual value?
The residual is what the leasing company expects the car to be worth at the end of the lease, set as a percentage of MSRP. A higher residual means less depreciation to pay for, so a lower payment. Typical 36-month residuals are around 50% to 60%.
Is it smart to put money down on a lease?
Usually only a little. A big down payment ("cap cost reduction") lowers the monthly payment, but if the car is totaled or stolen early, that money is usually lost. Many experts suggest paying only the required fees up front.
Can I negotiate a lease?
Yes. Negotiate the selling price (cap cost) just as you would when buying, and ask for the buy rate money factor. The residual is set by the lender and is usually not negotiable.