RightFiguresNominal cost over the lease term
Leasing costs less when its net cost is lower. Buying costs less when its net cost is lower. The result is not the lower monthly payment. Dollars at signing and dollars in the last month are counted the same. The payment difference is not invested.
The horizon is the lease term. A lease buyout is excluded. The lessee returns the car and does not keep the residual. The residual is used only to price the lease. Resale is what the buyer expects to receive, and it is entered separately.
How the lease payment is built
Adjusted capitalized cost is the capitalized cost minus the capital-cost reduction.
monthly depreciation = (adjusted cap cost − residual) ÷ term
rent charge = (adjusted cap cost + residual) × money factor
Both round half up to the cent. Depreciation can be negative when the residual is above the adjusted cap cost. A negative payment is rejected.
The money factor is entered directly. This page does not convert an APR with the dealer shortcut APR ÷ 2400. Acquisition, disposition and lease tax are cash. They are not added to the capitalized cost. The first monthly payment is inside the monthly total, not also added at signing.
Mileage is the total for the full lease, not an annual allowance. Extra miles are charged once, at the per-mile amount you enter. Unused miles have no credit.
How the purchase is counted
Amount financed is the purchase price plus the sales tax and fees you enter, minus the down payment. Principal is inside the payments and the remaining balance. It is not subtracted a second time as equity.
buy cost = down payment + payments during the lease + other monthly costs + remaining balance + selling costs − resale
A resale below the remaining balance raises the buy cost. A down payment that covers the price, tax and fees is a cash purchase. The rate and term are still checked, then unused. If the full loan term would end with a payment more than twice the regular payment, the comparison is rejected even when the lease is shorter.
A 36-month example
Capitalized cost and price $30,000. Reduction and down payment $2,000. Residual and resale $18,000. Money factor 0.001250. Term 36 months. Acquisition fee $795. Disposition fee $395. Lease tax $1,800. Buy tax $1,800 and fees $795. The loan is 6% for 60 months.
Depreciation is $277.78. Rent charge is $57.50. The lease payment is $335.28. Lease cost is $17,060.08. Amount financed is $30,595.00. Payments during the lease are $21,293.64, interest is $4,044.14 and the remaining balance is $13,345.50. Buy cost is $18,639.14. Leasing costs $1,579.06 less.
The same shape of comparison with a $20,000 car, a $5,000 reduction, a $16,000 residual, a 0.002000 money factor and a 0% loan for 24 months is not a cash purchase. Amount financed is $15,000. The buyer pays that balance with no interest. Buying costs $1,487.92 less.
Sources & review
- Financing or Leasing a Car — Federal Trade Commission
- Auto loans — Consumer Financial Protection Bureau
- Regulation M, Consumer Leasing — Consumer Financial Protection Bureau
Last reviewed: . The formula is reproduced above so you can check the math independently.
Educational estimate only. A lease contract, a money-factor conversion and a state tax rule can differ from the amounts you enter.