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    How To Calculate Car Leasing Payments

    Car Leasing Payments

    Leasing is a good option when you don’t want to take ownership of a vehicle. The car’s title remains with the leasing company and you get to drive the vehicle by paying a monthly fee.

    Although leasing is a good option, it is imperative that you understand the costs involved. The monthly amount consists of multiple aspects - some negotiable, some non-negotiable. When you understand the costs, it becomes easier to make the best decision to suit your financial circumstances.

    Keep reading to learn how to calculate an estimated car lease payment without visiting the dealership.

    The Factors

    There are four main factors that are a part of the final lease amount. These are the sale price of the vehicle, the interest rate, the vehicle’s resale value, and the term of the lease. The resale value is a predicted value when the lease ends, and is provided by the leasing company before you even sign the contract.

    Sale Price Of Car

    This is the actual selling price of the vehicle, minus the taxes and incentives provided by manufacturers. Usually, this is a negotiable sum which you can use to arrive at a lower monthly payment amount. It is always a sound idea to check the market rate of the car you’re interested in leasing. Use online comparison sites like Edmunds or other similar price guides to get a better idea of the standard selling rate.

    Resale Value

    Resale value, also called residual value, is what the vehicle will be worth after the lease period ends. This is an estimated number that is set by the lender. Accordingly, you can negotiate in this area as well for a better rate. That said, it is always a savvy approach to lease a car that has a higher resale value as you’ll ultimately be paying less over the lease period.

    Interest Rate

    The interest rate, in terms of a car lease, is also referred to as the “money factor” or the “lease factor”. The rate you’ll be offered depends on your credit score and will vary by lender. With a good score, you can expect rates between 2% to 5%, between 6% to 9% with an average score, and between 10% to 15% or more if you have a weaker score. 

    Duration Of The Lease

    The duration, or term of the lease, will usually last for 36 months. This is because extended warranties are often limited to a period of 3 years. In some cases, this warranty period might even be for 24 months. If you exceed this, you might have to pay extra for maintenance. It is a good idea to not lease cars for more than 3 years as this might only lead to unnecessary costs.

    Sales Tax

    A good thing about leasing is that you’re only liable to pay sales tax on the value of the car that you use instead of the total cost of the car. For instance, if the sales tax is 9% on a car costing $30,000, the total tax amounts to $2,700. However, if you’re leasing the car for 3 years, and the residual value is $15,000, you’ll only pay $1,350 as a sales tax over 36 months.

    Drive-Off Payment

    This is similar to a down payment. It consists of multiple fees and is also known as the capitalized cost reduction. You have the option to select the down payment amount to extent, and even opt for zero. However, it is recommended that you put in at least a thousand dollars as a down payment. If you can pay a higher amount upfront, it’ll reduce your monthly installments demonstrably. 

    An Example

    Armed with information on the different factors used to estimate lease payments, see an example of how these aspects fit together. 

    For this example, let’s assume a car has a sale price of $30,000. You want to lease the car for 3 years and the interest rate is 6%. Assuming you pay $1000 as drive-off payment and 8% sales tax, the resale value offered is $17,000. 

    Based on these numbers, the estimated monthly payment will be $484.20. This includes a monthly sales tax of $35.87 and interest payment of $115.00.

    Note that this is just a benchmark and actual rates will depend on the lender. Hence, we recommend obtaining quotes from multiple lenders to determine the most applicable option to suit your finances.


    Given a lease contract takes multiple factors into account, the results of your estimates will vary with what you’ll be offered from lenders. In any case, it is important to do your research and negotiate the costs for a few factors so you can access the best leasing deal.