Before heading to the dealership to lease the amazing car you’ve got your eye on, an understanding of how car leasepayments are calculated can ensure you’re getting the best possible deal. This step can also help you determine your budget for a lease.
Gather the Information You’ll Need
First, gather the following info:
- Manufacturer’s suggested retail price (MSRP), which is the sticker price for the car
- Selling price, which is lower than the MSRP, is the final price paid for the car after negotiations, and does not include the taxes and fees
- Any incentives and rebates the manufacturer is currently offering for the car you have your eye on
- Residual value, a percentage that represents how much the car will be worth after a specified time, estimated by the manufacturer
- The length of the lease in months, often 36 months, though other terms are available
- Money factor (MF), which is the annual percentage rate divided by 2,400
Determine Depreciation
The formula to determine how much the car’s value will decrease during the lease is capitalized cost minus residual value, divided by the lease term in months.
If the car’s MSRP is $40,000, assume the manufacturer has set a 50 percent residual for a 36-month lease, so the residual is $20,000. The negotiated selling price is $35,000, and you’ll receive $5,000 in manufacturer rebates and incentives, so the capitalized cost, or amount financed, is $30,000.
The capitalized cost ($30,000) minus the residual ($20,000) totals $10,000. Divide this number by 36 to get a depreciation amount of $277.77 per month.
Determine Finance Charge
To find the finance charge, add the capitalized cost to the residual value and multiply that number by the money factor.
Continuing with the example above, let’s say the money factor is .00100 (2.4 percent APR). The capitalized cost of $30,000 plus the residual value of $20,000 totals $50,000. Multiplying this sum by the money factor gives you a monthly finance charge of $50.
Calculate Your Payment
Add the monthly depreciation cost and finance charge together, which results in a monthly lease payment of $327.77.
Consider Taxes, Registration, and Fees
Check with the Orange County car dealershipor auto broker for solid numbers. Some fees you may be charged include:
The acquisition fee, which is an administration fee charged by the manufacturer
- Sales tax, which is usually only charged on the leased portion of the vehicle
- Tax on incentives such as the down payment and rebates
- Government fees such as registration and title costs
- Document fees charged by the dealer
These fees often must be paid up front when you sign a lease, but they can sometimes be added to the monthly payment and spread out over the lease period.
Whether you’re leasing or buying a luxury car, it’s important to calculate your potential monthly payment to ensure you’ll be able to afford it. Get in touch with Below Invoice for help finding the right car for you that fits within your budget. Call 949-630-0303 today.
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