Short answer
A lease payment is monthly depreciation plus a rent charge. For a $44,500 car with a 56% residual, 36 months and a 0.00225 money factor, the payment is $544.95 before tax and $588.55 with 8% tax.
1. The formula
- Net capitalized cost = price − down payment − rebates
- Residual = MSRP × residual %
- Depreciation = (net cap cost − residual) ÷ term
- Rent charge = (net cap cost + residual) × money factor
- Base payment = depreciation + rent charge; then add sales tax
2. Worked example
| Step | Calculation | Result |
|---|---|---|
| Net cap cost | 44,500 − 2,500 − 1,000 | $41,000 |
| Residual | 48,000 × 56% | $26,880 |
| Depreciation | (41,000 − 26,880) ÷ 36 | $392.22 |
| Rent charge | (41,000 + 26,880) × 0.00225 | $152.73 |
| Base payment | $544.95 | |
| Payment with 8% tax | $588.55 |
3. What moves the payment most
| Change | Before tax | With 8% tax |
|---|---|---|
| Negotiate $1,000 off the price | −$30.03 | −$32.43 |
| Put $1,000 more down | −$30.03 | −$32.43 |
| Raise the residual by 1 point (57% of MSRP) | −$12.25 | −$13.23 |
| Lower the money factor by 0.00025 | −$16.97 | −$18.33 |
4. Where tax is charged
Some states tax each monthly payment and others tax the total of the payments up front. The calculator has a switch for both. Check your state's rule.
5. Check against the dealer worksheet
Ask for the capitalized cost, residual, money factor and fees in writing, run them through the formula and compare the result with the quoted payment.
6. Frequently asked questions
What is the formula for a car lease payment?expand_more
Monthly depreciation (net cap cost − residual) ÷ term, plus rent charge (net cap cost + residual) × money factor.
What is capitalized cost?expand_more
It is the price the lease is based on. Net capitalized cost subtracts your down payment and rebates.
Does sales tax go on every payment?expand_more
In some states it does, and in others it is charged on the total payments up front.
What lowers a lease payment the most?expand_more
A lower price or a larger down payment, since both cut the capitalized cost.