![]() ![]() Importantly, states have differing sales taxes so ensure you are aware of the tax situation where you are leasing (find the sales tax rate that applies in your state HERE). Taxes are payable on the depreciation and interest costs. Although taxes are often forgotten, by factoring them in, you will know your full monthly expenses when leasing a vehicle. Remember to take taxes into account when you're thinking about leasing. Secondly, the lease charge can be used, in which case the following formula is applied: Dividing the interest rate by 2,400 will give you the money factor. There are two ways to calculate the money factor. (capitalized cost + residual cost) × money factor = interest owed monthly The formula used by dealerships to calculate the interest owed each month is as follows: When determining your monthly lease payment, it is important to consider the impact of interest and add it to the vehicle's depreciation value. ![]() The "money factor" is sometimes used by car dealerships to calculate the monthly interest owed. High interest rates equate to high monthly repayments. Monthly lease payments can be severely impacted by interest rates, so it is vital to consider interest rates before signing a lease agreement. Typically, the duration of a lease is from three to five years. Standard practice is for the lessor to provide you with the residual value or a residual percentage to apply against the vehicle's MSRP. ![]() Residual value:Ī vehicle's residual value is how much it will be worth when the lease comes to an end. This includes the final vehicle price (typically the MSRP is negotiated down) as well as any credit from a trade-in, rebates and down payment reductions. (capitalized cost - residual value) / term of the lease = depreciation value Capitalized cost:Ī vehicle's capitalized cost is the total amount financed by the lease. The following formula is used to calculate the depreciation value of a vehicle: It is important to remember that mileage has a significant impact on depreciation value, with cars that are used more being worth less. This represents a depreciation value of $10,000, which will be considered when the monthly lease payments for vehicle A are determined. To illustrate, assume that vehicle A is worth $30,000 new off the lot, but in three years' time its value has dropped to around $20,000. This is why depreciation is taken into account when a lessor is establishing a lease contract. When the lease ends, you return the vehicle to the granter of the lease.Ĭalculating your monthly payments DepreciationĪ drop in a vehicle's value over time cannot be avoided. It is also your responsibility to take care of the car up until the end of the lease. As the holder of the lease, you are required to make a down payment followed by set monthly payments. When you sign a contract to lease a car, you are entering into a legally binding agreement that gives you the right to use that vehicle for a set amount of time and given certain terms and conditions. The calculator will now be able to give you the answers you need. To use the calculator, simply enter the manufacturer's suggested retail price (MSRP) of your vehicle followed by the sale price, residual factor, lease length (in months) and further details when prompted. This free calculator allows you to determine your monthly auto lease payments and provides you with an effective method to estimate what your total lease payments will be as well as your net capitalized costs, lease fees, depreciation and residual asset value. ![]()
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