How Lease Payments Are Calculated: The Complete Formula
Learn exactly how car lease payments are calculated, with step-by-step formulas and real examples.
Understanding how lease payments are calculated gives you the power to evaluate any deal and negotiate from a position of strength.
The Lease Payment Formula
Monthly Payment = Depreciation Fee + Finance Fee + Sales Tax
Step 1: Depreciation Fee
Depreciation = (Net Cap Cost - Residual Value) ÷ Term in Months
Step 2: Finance Fee
Finance Fee = (Net Cap Cost + Residual Value) × Money Factor
Step 3: Monthly Pre-Tax Payment
Monthly Payment = Depreciation Fee + Finance Fee
Step 4: Add Sales Tax
Total Monthly = Monthly Payment × (1 + Tax Rate)
Real Example
Let's calculate the monthly payment for a $40,000 car:
**Depreciation:** ($38,000 - $23,200) ÷ 36 = $411.11
**Finance Fee:** ($38,000 + $23,200) × 0.00125 = $76.50
**Pre-Tax Monthly:** $411.11 + $76.50 = $487.61
**With Tax:** $487.61 × 1.08 = $526.62
How to Lower Your Payment
The Bottom Line
Every lease payment breaks down into just two components: depreciation and interest. Understanding this formula lets you evaluate any deal instantly.