A car lease is one of the most opaque financial products in the consumer market. The dealer hands you a worksheet with numbers like “money factor 0.00200” and “residual 58%” and most people sign it without understanding that those two numbers determine the entire deal. The monthly payment looks reasonable on its own, but you have no way to know whether you are getting a good lease or a terrible one until you do the math yourself. This calculator runs the same formulas the dealer uses, exposes the money factor as an APR equivalent, and tells you whether you should be leasing this car or buying it instead.
If you are still deciding between leasing, financing, or buying outright, also run the numbers through the Car Affordability Calculator and the Auto Loan Calculator first to see what a purchase would actually cost you.
What You Are Actually Paying For When You Lease
A lease is a depreciation contract. The leasing company buys the car, you use it for 2 to 4 years, and you pay them for the value the car loses during that time plus interest on the money they have tied up in it. At the end you return the car. You have rented depreciation, nothing more.
Two numbers determine your monthly payment: capitalized cost (what the dealer sells the car for, with adjustments) and residual value (what the leasing company thinks the car will be worth at the end of the lease). The difference between those two numbers is the depreciation you owe. Spread across the lease term, that becomes your depreciation fee. On top of that you pay a finance fee, which is the interest on the capitalized cost plus residual value combined, multiplied by the money factor.
That is the entire payment. Depreciation fee plus finance fee, with sales tax added on top in most states. If you understand these two components, you understand every car lease.
The Money Factor (and Why Dealers Use It Instead of APR)
The money factor is the interest rate on a lease, expressed as a tiny decimal number instead of a percentage. A money factor of 0.00200 looks meaningless on its own. Multiply it by 2,400 and you get 4.8%, which is the equivalent APR. That conversion is exact, not approximate.
Dealers prefer money factor because most customers do not know what it converts to. A money factor of 0.00417 looks small and harmless. Convert it: that is a 10% APR. A money factor of 0.00250 is 6% APR, which is in line with current new car financing. Anything above 0.00300 (7.2% APR) is on the high side, and anything above 0.00400 (9.6% APR) is a bad deal you should negotiate down or walk away from.
This calculator gives you both numbers in real time. Plug in either the money factor or the APR, and the other appears automatically. If your dealer worksheet only shows money factor, multiply by 2,400 and ask why their lease APR is so high if the number surprises you.
Residual Value: The Number That Controls Everything
Residual value is the leasing company’s estimate of what the car will be worth at lease end, expressed as a percentage of MSRP. A 60% residual on a $40,000 car means the leasing company expects the car to be worth $24,000 at the end. You are paying for the $16,000 of depreciation in between.
High residual is good for the lessee. It means less depreciation to pay for, which means a lower monthly payment. This is why some vehicles lease cheap and others lease expensive: a Toyota Tacoma might lease at 70% residual because Tacomas hold value, while a comparable Nissan Altima might lease at 48% residual because mainstream sedans depreciate fast. The MSRP of the two cars might be similar, but the Tacoma lease will be hundreds less per month.
Residuals are set by the leasing company, not the dealer, and they are not typically negotiable. They are also not connected to reality in any precise way. Sometimes residuals are inflated to make a slow-selling model lease attractively. Sometimes they reflect real market data. Either way, you cannot change them. You can only shop for vehicles with favorable residuals.
Lease vs Buy: The Honest Comparison
The bottom of the calculator runs a direct comparison. It models the same vehicle as a 36 or 48-month loan at a comparable APR, calculates the total out-of-pocket cost, and subtracts the residual value (what you could sell the car for at the end of the loan term). Then it compares that net cost against the total cost of leasing the same vehicle for the same period.
For most vehicles in most situations, buying comes out a few thousand dollars ahead over a 3 to 4-year horizon because you end up with equity (the car). But the comparison varies. Vehicles with high incentivized lease programs (which manufacturers use to subsidize slow-moving models) can lease much cheaper than they would cost to buy. EVs in years where the federal tax credit flows through the lessor (and not the buyer of a vehicle that does not qualify when purchased) often lease far better than they buy. Luxury European cars often lease similarly to buying, because they depreciate so fast that the residual the leasing company is willing to set is also low.
The right answer depends on what you value. Leasing gives you a new car every 2 to 3 years, lower monthly payments, and warranty coverage for the entire ownership period. You get nothing at the end. Buying gives you ownership, no mileage limits, the option to modify or repair the car however you want, and equity that you can sell or trade. You also get the maintenance bills and the depreciation hit when you eventually sell.
The Mileage Trap
Every lease specifies an annual mileage allowance, typically 10,000, 12,000, or 15,000 miles per year. Going over costs $0.15 to $0.30 per mile when you turn the car in. On a 10,000-mile lease where you drive 18,000 miles per year for 3 years, that is 24,000 over-miles times $0.25 each, which is $6,000 at lease end. People do this routinely.
If you genuinely drive less than 10,000 miles per year, a lease can be a great fit because you are paying for less depreciation. If you drive 15,000 or more per year, leasing rarely makes sense unless you are willing to lock in the higher mileage allowance upfront (which raises the monthly payment to cover the extra depreciation) or you are confident you will buy the car out at lease end (which usually erases the savings of leasing in the first place).
How to Use This Calculator
Start with the basics. Enter the MSRP, the selling price you have negotiated (always negotiate the selling price separately from the lease terms — dealers will try to skip this step), the residual percentage from the lease worksheet, the money factor or APR equivalent, and the lease term. The calculator gives you the monthly payment broken into depreciation and finance components, the total cost over the lease, and the effective APR.
Then look at the lease-vs-buy comparison card. The same vehicle is modeled as a loan at the buy-comparison APR you specify (typically 1-2% higher than the lease money factor APR, since auto loan rates run a bit above subsidized lease rates). The card shows monthly payment, total cost, and equity at the end for each path, with a winner highlighted.
Try different scenarios. A higher down payment lowers the lease payment but increases your risk if the car is totaled in month two (you lose that down payment money). A longer term (48 vs 36 months) lowers the payment but you spend more time in the riskiest period of vehicle ownership (years 3-4 when warranty starts to expire). Shorter terms cost more per month but minimize your exposure.
Common Questions
How do I find the money factor on a lease deal?
Ask the salesperson directly: “What is the money factor on this lease?” If they refuse to tell you or claim they do not know, walk away. The money factor is on every lease worksheet. Some dealers will quote you a higher money factor than the manufacturer’s buy rate (the lowest available rate from the captive lender), which means they are marking up the rate to pocket the spread. The buy rate is what your credit qualifies you for; the markup is dealer profit. You can usually negotiate the money factor down to the buy rate by asking, especially at the end of the month or quarter.
Can I negotiate the residual value?
No. Residual values are set by the leasing company (typically the manufacturer’s captive finance arm, like Ford Credit or Toyota Financial) and they are not negotiable. They are usually published in tables for each model, trim, and term. What you can do is shop for vehicles with favorable residuals — Tacoma, 4Runner, Wrangler, and certain Honda and Toyota models traditionally lease well because they hold value. Luxury European cars often lease poorly for the opposite reason.
Should I put money down on a lease?
Generally no. Putting cash down on a lease (called a “cap reduction”) lowers your monthly payment, but if the car is totaled in a serious accident in the first few months, you lose that down payment money. The insurance payout goes to the leasing company up to the residual value plus your remaining payments, but your initial cap reduction is gone. Most lease experts recommend zero cap reduction or just enough to cover the acquisition fee and first month payment. Lower monthly payments are not worth losing a $3,000 down payment to a totaled car.
What is the acquisition fee?
An upfront administrative fee charged by the leasing company, typically $595 to $895. It is not negotiable but it can sometimes be rolled into the capitalized cost so you do not pay it out of pocket at signing. Some lenders advertise lower acquisition fees as a promotion. This calculator includes the fee in the capitalized cost calculation so the monthly payment reflects the real total cost.
What about the disposition fee at the end of the lease?
A turn-in fee charged when you return the car at lease end, typically $350 to $500. It is usually waived if you lease another vehicle from the same manufacturer. The fee is not in your monthly payment — it is billed separately at lease end. Factor it into your total cost comparison if you plan to leave the brand after the lease.
Can I buy the car at the end of the lease?
Yes, this is the “lease-end purchase option” and it equals the residual value plus a small purchase fee (typically $300). If the car’s market value at lease end is higher than the residual, buying it out is a good deal. If market value is lower than residual, just turn it in. In the years after a tight new car market (2021-2023), many leased vehicles came off lease with market values $5,000-10,000 above their residuals, and savvy lessees bought them out and either kept them or sold them for the difference.
How does sales tax work on a lease?
It depends on your state. In most states, sales tax is applied to the monthly payment, which means you pay it gradually over the lease term (calculator default). In a few states (Texas, Illinois, Georgia, Arkansas, Iowa, and a couple others), sales tax is calculated on the full vehicle price at lease signing and paid upfront. In a small number of states it is even more complicated. Confirm with your dealer how tax is structured in your state before signing.
What is gap insurance and do I need it?
Gap insurance covers the difference between what the car is worth (insurance payout) and what you still owe (lease balance) if the car is totaled. Most leases include gap coverage automatically. Check your lease contract — if it is not included, buy it from your insurance company for typically $20 to $40 per year. Without gap coverage, a totaled lease can leave you owing several thousand dollars on a car that no longer exists.
Why does the calculator show different APRs for lease and buy?
Lease money factors are often subsidized by the manufacturer to move inventory, so they can be 1-3% lower than what you would pay on a comparable auto loan. The calculator defaults to a 4.8% lease APR and 7.0% buy APR to reflect this typical spread. Plug in the actual rates you are quoted for the most accurate comparison. If the lease APR equivalent is the same or higher than the buy APR, you are not getting a subsidized lease deal, and buying is almost certainly the better financial choice.
Why We Built This
The car lease worksheet is designed to be confusing. Money factor instead of APR, residual quoted as a percentage you have to mentally convert to dollars, fees buried in capitalized cost, sales tax structured differently in every state. The whole format exists to make comparison shopping difficult and to obscure the markups built into the deal. We built this calculator so you can run the same math the F&I office runs, see the deal exactly as the leasing company sees it, and walk into the dealership knowing what a fair payment looks like before they show you their number. You can be the mechanic, and you can also be the lease analyst.
Help Us Make This Tool Better
Lease math gets complicated in some states (Texas upfront tax, Virginia personal property tax on leased vehicles, Illinois tax-on-payment-only-on-trade-difference). If the calculator gave you a number that did not match your actual lease worksheet, or if you saw a deal structure we should support, let us know. We update these tools when readers point out real-world cases that need additional handling.