Understanding Auto Leasing: Part 3 – Calculating Costs

negotiating a dealDealerships and lease financing companies use a formula for calculating lease payments. This formula actually does not appear on leasing contracts, so most people do not know how to, or even know that they should, check the dealer’s calculations. Checking the dealer’s calculations will help you identify innocent errors or intentional fraud. Not knowing how to calculate a monthly lease payment means you are much more likely to pay too much for your lease.

Learning the standard formula for calculating your payment will ensure that the dealer bases the payment on the actual negotiated lease price, that you are given proper credit for your trade-in or down payment, that there are no hidden fees, and that the ‘money factor’ (interest rate) has not been increased. You may be shown all of the correct information in your contract, but if you do not double-check the math, you will never know if anything was hidden or mistaken in calculations.

How to Calculate Your Monthly Lease Payment with a Pocket Calculator

You can find the explanation of all of the following terms in our previous installment, “Part 2 – The Contract”.

Your monthly payment is the sum of your depreciation fee, your finance fee, and your sales tax (if applicable).

  • First, calculate the depreciation fee:

(net cap cost-residual) + term = Your Depreciation Fee

  • Next, calculate the finance fee:

(net cap cost + residual) x money factor = Your Finance Fee

  • Add the two together to get your monthly payment before taxes.
  • Then, figure out your monthly tax amount:

monthly payment x local sales tax rate = monthly tax amount

  • Finally, add together your monthly payment and your monthly tax amount to get your total monthly lease payment.

Cash Due at Signing

The amount due at lease signing is not the same as a down payment, although your down payment (if any) is a component of the cash due at signing. You may have to pay some or all of the following up-front: the first monthly payment, your down payment, sales tax of the down payment, license and registration fees, acquisition fees, and applicable security deposit.

Saving Money on a Lease IS Possible

Now that you know about all of these fees, don’t you want to find a great lease deal so you can lessen or avoid many of the fees? Stay tuned for our next installment, “Understanding Auto Leasing: Part 4 – Finding a Deal,” for some valuable money-saving information.

February 25, 2013 by Jamie Rettig