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How to Calculate Monthly Lease Payments



  • jwilliams2jwilliams2 Posts: 855
    Yes, the cap cost reduction does come off the actual selling price to arrive at the net cap cost. I would ask what else is going into the payment number. Looks like there is somewhere around $1500 or so that needs explaining. Probably the acquisition fee plus??
  • kyfdxkyfdx Posts: 27,652
    What your example doesn't show is the actual capitalized cost... That could include other amounts not shown. The acquisition fee comes to mind, at first glance...

    Prices Paid, Lease Questions, SUVs

  • kyfdxkyfdx Posts: 27,652
    edited July 2012
    Firstly, I want to understand how the capitalized cost was arrived at. Shouldn't the capitalized cost be 19550+795-1999 = 18346?. They are claiming it is 18440.

    If $1999 is the due at signing, then it includes the first payment and you should only subtract $1800. BUT... what isn't disclosed is the actual selling price of the vehicle. In your assumption, you would be paying MSRP, which isn't good... Also, other additions to the CAP cost may not be disclosed, including the acquisition fee.. My guess? There is an acquisition fee of around $700, and the vehicle is discounted about $800 to arrive at that CAP cost

    Also, I want to find the MF they are using. Here's my calculation from the $199 monthly payment. The depreciation payment is (18440 - 12004)/36 = 179. That leaves $20 for the interest, so (18440+12004)*MF = 20. That makes MF = 0.000657, so interest rate = 0.000657*2400 = 1.57%

    Is this calculation correct?

    Your math looks to be correct... Is the purchase option price the same as the residual? Usually it is, but not always... that could change the calculation... Most likely, you have it right.

    Since total payments required is 7160 and each payment is 199, they are expecting 36 payments. Then why do they claim $1999 includes the first month's payment?

    It's still 36 payments of $199..... paying other amounts at signing in addition to that ($1800) doesn't change what is actually being paid.. Just a legal disclaimer.

    Lastly, what should I expect to pay for 'taxes, title and fees" in California?

    Title/registration/document fees in California are roughly 2-3% of the purchase price, as a general rule of thumb... California taxes the monthly payment on leases.... So, if your local rate is 9%, then tax will be about $18/mo..


    Prices Paid, Lease Questions, SUVs

  • dwsindydwsindy Posts: 3
    Thanks for the reply. Yes the destination charge or acquisition fee is not there so that is probably it. I wish they would of just told me that up front but they seem to always be about the payment and that is it. And in such a big hurry to get me down in front of the business manager.
  • delta737hdelta737h Posts: 603
    edited July 2012

    Some fund providers use an interest rate instead of a money factor. When I saw the $795 acquisition fee, I immediately thought of GMAC/Ally Bank who charges a $795 acq. fee. They also use an interest rate. So, here's my question: Who is the manufacturer? GMAC? I know that there are other providers that charge a $795 acq. fee, but I want to make sure whether this is a money factor lease or an interest rate before answering your question.

    I assume thast the numbers and all terminology that you provided are correct.
    For instance, you stated

    "Payment based on capitalized cost of $18,440"

    I have no idea what that means. Is that the selling price? Is that the gross cap cost? Is that the net cap cost? Frequently, dealers will erroneously use the term "purchase price" when they really mean "gross capitalized cost". So, there are a lot of questionable things here. For instance, I've assumed that the $18,440 is the net capitalized cost because that's the way most Ads disclose it.


    "MSRP $19,550 plus destination charge of $795."

    Just doen't make a bit of sense. Another thing that makes no sense is that the Ad states...

    "Total payments of $7,160."

    Makes no sense because 35 x $199 + $1,999 = $8,964

    The $1,999 includes the first payment of $199. Obviously, there is a cap reduction of $1,800 and the 795 acq fee appears to be financed in the lease.

    This Ad does not make one bit of sense. I think you need to double check it and ask some questions.

    Can you provide a link to the manufacturer's website please?

    Let me comment on your calculations...

    The average monthly depreciation is actually $178.77... and the average monthly finance charge is $20.22... and so, the money factor works out to be 0.00066424372...

    This is a rather strange-looking money factor because the money factor syntax takes the form 0.00XXX and, if rounded, amounts to 0.00066 which yields as payment of $198.87. Usually, the rounding of the money factor is not that extreme. And, although very close, I still get the feeling that this might be an interest rate lease. Another issue is that the residual factor amounts to 61.4% ($12,004/$19550) which is really strange. It should come out to a nice whole number. Something just isn't right.

  • ksrpksrp Posts: 11

    Thanks for your response.

    Regarding your point about paying MSRP, I was only walking through the calculation with the data in the ad. Just trying it on for size, if you will. We are not yet sure which vehicle we want to get and if it is this one, I will definitely negotiate to bring down the purchase price first.
  • ksrpksrp Posts: 11
    edited July 2012
    Thanks for your response, John.

    The numbers are terminology are correct. The manufacturer is Mazda and here's the link to the ad. It's the offer at the bottom of this page.
    link title

    Now your points/questions --
    > "MSRP $19,550 plus destination charge of $795."
    > Just doen't make a bit of sense.

    I don't know why it doesn't make sense. Is it the numbers themselves or the terminology?

    > "Total payments of $7,160."
    > Makes no sense because 35 x $199 + $1,999 = $8,964

    I assumed that 'total payments' refers to payments during the lease duration and does not include the $1,999 payment made at signing. As kyfdx explained, one reasonable interpretation is $1800 + $199 at signing and then 36 payments of $199 subsequently. In which case, 36*199 = 7164, which is close enough to their statement. My original question about the $7160 was why should there be 36 more payments if the initial payment included the first monthly payment. Shouldn't there be 35 more after the first payment? But I will accept kyfdx's explanation.

    > And, although very close, I still get the feeling that this might be an interest rate lease.

    I did not know that there are different kinds of leases. Please explain 'interest rate lease'. Are most leases some other kind? Does it change the calculation?

    Hopefully, you can look at the ad with the link I provided. I appreciate any further comments after you look at the ad.
  • delta737hdelta737h Posts: 603
    edited July 2012

    Could not find a lease fitting your description at the Mazda website. Knowing the model may have been helpful. Anyway, I was so focucsed on the $795 acquisition fee that when I saw...

    "MSRP $19,550 plus destination charge of $795."

    my mind blocked out the word "destination" and all I saw was $795 which I associated with the acq fee. Sorry. Now it makes sense. So, the residual is $12,004 meaning that the residual factor is 59% ($12,004/$20,345) based on a total MSRP of $20,345.

    Mazda uses a money factor as opposed to an interest rate. Ally Bank uses an interest rate. Interest rate payments are computed based on an annuity formula similar to the way loan payments are calculated except at the end of the term, there is a residual remaining which is analogous to a loan balance. This results in lower monthly payments than they otherwise would be.

    Because of the complexities associated with computing payments using an interest rate, many years ago the concept of "money factor" was introduced which is defined as the estimated interest rate divided by 24. Here's why...

    monthly payment ~ (annual int rate/12) x (net cap + residual)/2 + (net cap - residual)/Term

    So that...

    monthly payment ~ (annual int rate/24) x (net cap + residual) + (net cap - residual)/Term

    money factor ~ annual int rate/24
    (annual int rate/12) = estimated monthly interest rate
    (net cap + residual)/2 = average lease balance
    (net cap - residual)/Term = average monthly depreciation charge
    (annual int rate/12) x (net cap + residual)/2 = average lease finance charge

    If we assume an imputed money factor of 0.00066, then the monthly payment, assuming the capital cost of $18,440 is the NET capital cost, is

    0.00066 x ($18,440 + $12,004) + ($18,440 - $12,004)/12 = $198.87

    which is very close to $199. The bet here is that the NET cap is $18,440 and that the money factor is 0.00066. If so, then the selling price of the vehicle is...

    $18,440 + $1,800 - $795 = $19,445

    You need to research the selling price for this model vehicle as the selling price is the most important number in a lease. Use Edmunds, and TrueCar...

    Total payments of $7,160 does not make sense because you're paying $1,999 at lease inception which includes your first payment of $199 meaning that 35 payments of $199 remain. It also includes an $1,800 capitalized cost reduction. The $795 acq fee is financed in the lease and, therefore, is embedded in the $199 payment. As such, total payments should be....

    $1,999 + 35 x $199 = $8,964

    Federal regulations (Regulation M- Consumer Retail Leasing) manadate that cap reductions be included in the total of payments as well as the first payment due at lease signing.

    Let me emphasize that your first payment of $199 is due at signing and the remaining 35 are due over each of the next 35 months. You're making payments at the beginning of the term instead of at the end which is how loan payments are constructed. Your periodic payments form what is known as an annuity due because the first is paid up front (i.e., due immediately). A sequence of loan payments are what is known as an ordinary annuity because the first payment isn't due until one month from the date the loan is originated.

    Regarding your question...

    "My original question about the $7160 was why should there be 36 more payments if the initial payment included the first monthly payment. Shouldn't there be 35 more after the first payment?"

    There aren't 36 more payments... there are only 35 because you made the first payment at lease inception. Hence, total payments, including the $1,800 cap reduction, should be...

    $1,999 + 35 x $199 = $8,964

  • If the monthly lease payment is advertised at X number of dollars a month and the start up fee payment is listed at X dollars of month, what factor does bonus cash mentioned in the incentive have on the payment and down money. If the down payment is $2500 to start the lease and the bonus cash is $1000. does that equate to only $1500 down, or is the bonus cash already factored into the figures already stated?
  • kyfdxkyfdx Posts: 27,652
    In most ads, all of the incentives are already factored into the advertised payment and money down..

    I'm sure you can find an occasional exception..

    Prices Paid, Lease Questions, SUVs

  • bsyahbsyah Posts: 8

    I used this forum to try and figure my own payments when negotiating 2 leases (one for my wife, one for me). We ended up being very close to what I was hoping for both on monthly payments and taxes/fees being paid up front.

    Now that I am reading through all my lease agreements I am trying to understand all the numbers. I still think I got was I was looking for but I am having trouble making sense of why some of the numbers are represented the way they are or why it is structured the way it is. I want to make sure I am educated on this so when my leases are up I can do better or so I can understand if I made mistakes. Any help would be appreciated.

    2013 Sorento EX w/ Premium Plus Package 36 month/15,000 mile
    MSRP - 31,075
    Residual - 55% or 17,091.25
    Agreed price - 29771.02
    Taxes - 1232.88 (how did they calculate this?) 7.5% Ontario County NYS Taxes
    Acq fee - 595
    Gross Cap cost (Price + taxes + acq fee) - 31598.90
    Cap cost reduction - 3672.86 (I DON'T KNOW WHERE THIS CAME FROM)
    Adj Cap Cost - 27926.04
    Money Factor - 0.00117
    Rent charge - 1896.25
    Monthly payments - 353.64

    Amount due at signing
    Cap cost reduction - 3672.86
    1st payment - 353.64
    Title fee - 85
    Reg/NYS tire fee - 87.50
    Total - 4199 (This is then broken down into 2250 rebate and 1949 actual cash down)
    The 2250 rebate comes from 1500 Kia dealer cash and 750 competitive bonus for Mazda owner

    So all in all it comes close to what I had calculated as what I was expecting
    341.91 payments with the following down
    595 acq fee
    87.50 reg tire
    85 title
    341.91 1st payment
    1091 (tax on rebate and 341.91 monthly payment)
    total down - 2200

    I will post the numbers on the Optima later. Let's just start with the Sorento if someone is able to shed light on this I would be much appreciated.
  • delta737hdelta737h Posts: 603
    edited October 2012

    Your $3672.86 cap reduction is what remains of your $1949 cash down and the $2250 rebate ($4199) after deducting the following charges...

    1st payment - 353.64
    Title fee - 85
    Reg/NYS tire fee - 87.50

    Sales tax in NYS is levied on the total of the taxable payments which includes the $595 acq fee as it is capitalized in the lease. In your case, your taxable payment amounts to $317.95. So, your total payment tax liability amounts to 36 x 317.95 x 0.075/(1 - 0.075) or $928.07. Remember that you're capitalizing the sales tax. In addition, tax is levied on the $3,672.86 cap reduction which amounts to 0.075 x $3,672.86 or $275.46.

    So far, your tax liability amounts to $928.07 + $275.46 or $1,203.53. Somewhere, your dealer managed to find an additional tax of $29.35 (i.e., $1,203.53 + $29.35 = $1,232.88) which reflects an additional taxable amount of $29.35/0.075 = $391.33. Given the information provided, I have no idea where this came from and so, in order to make an intelligent assessment, I would need to see your lease agreement or, better yet, the dealer's lease worksheet as something is definitely missing. My suggestion to you is to ask the dealer for their Lease Worksheet. Every dealer must submit a copy of this worksheet to the fund provider.

    For a detailed description of how consumer retail leases are taxed in NYS, I suggest visiting the following website...

    There you will find a comprehensive article detailing the sales tax treatment given to leases in NYS. Except for taxes, which remain questionable, all other numbers are correct.


  • bsyahbsyah Posts: 8

    Thanks for all that info. I will have to go over it a few times to make sure I understand. I had asked to pay taxes and all fees and not put down any down payment (cap cost reduction) other than paying all taxes and fees. That is why I dont get where the Cap cost reduction number came from. I see how it comes from the down payment and rebate minus fees but how did they calculate the down payment? Seems like a chicken or the egg thing.

    Based on what you have said I would have expected to pay 928 + fees. Also does the acq fee have to be capitialized or could it be paid upfront with taxes?

  • bsyahbsyah Posts: 8
    I guess I had that incorrect. The 928 was based on having CCR of 3672.86. If I actually had no CCR excpet the 2250 dealer rebate (that can be considered CCR right?) then I should have a taxable payment of 359.14? which would be 1048 according your formula? But then my up front payment should have been 1048+85+87.5+359.14 = 1579.64.

    Why is the tax calculated by multiplying by .075 and then dividing by 1-.075?

    Thanks again for the information on this.
  • delta737hdelta737h Posts: 603
    edited October 2012

    You asked...

    "Why is the tax calculated by multiplying by .075 and then dividing by 1-.075?"

    If you are rolling (i.e., capitalizing) New York sales tax into your lease, you are paying sales tax on sales tax. As far as I know, the constitutionality of this has never been challenged. In fact, I'm guessing that few New Yorkers realize that sales tax is being levied on sales tax in such instances. Again, you may want to visit the website I suggested above to see exactly how taxes and taxable payments are determined in NYS. It's too long to discuss here.

    Down payment and CCR mean the same thing. In leasing, the term down payment is never used but people use it to mean different things. For instance, they'll often use the term to mean all the up front fees paid in a lease which is incorrect. For example, the acq fee can be paid up front as well as taxes. However, neither of them reflect a down payment. Down payment means cap reduction only.

    Part of or all of the rebate can be used as a CCR. The balance can be used to pay the front end lease charges which was done in your case. I'm not sure why you paid $1,949 cash as part of the CCR. The other part, $3,672.86 - $1,949 or $1,723.86 represents that portion of the $2250 rebate that was used as a CCR. The balance of the rebate, $2,250.00 - $1,723.86 or $526.14 was used to pay the following front end charges...

    1st payment - 353.64
    Title fee - 85
    Reg/NYS tire fee - 87.50

    And so, a portion of the $2250 rebate was used as a CCR and the other portion was used to pay the front end lease charges. Am I making sense?

    Your lease payment was calculated as follows...

    0.00117x (29771.02+595+1232.88-3672.86+17091.25)+(29771.02+595+1232.88-3672.86-17091.25) x 1/36 = 353.64

    Hope this helps.

  • bsyahbsyah Posts: 8
    Yeah the spreadsheet I put together for calculating this stuff off of the different input numbers jibes but what I did not understand was why I had any CCR at all. Did acq fee or taxes have to be capitalized and then partially taken back out with CCR money? Seems like the straightforward way would have been to capitalize nothing and then apply the rebate towards tax and fees and then pay whatever remained. But I did not know if taxes had to be paid on the rebate.

  • delta737hdelta737h Posts: 603
    edited October 2012
    That's the way the dealer decided to do it. You gave them $1,949 in cash plus a $2,250 rebate. So, the dealer decided to allocate that money to pay the up front charges and the amount remaining was used as a CCR. You probably could have controlled that deal by creating a one-page lease proposal stipulating how the $2,250 rebate was to be allocated. Because you didn't do that, the dealer took it upon themselves to allocate thoses dollars in the manner described. Remember, they have a total of $4,199 to play with. The acq fee and taxes were capitalized in the lease but could have been paid upfront. Personally, I would have paid them upfront ($595 + $1218 + 407 + 85 + 87.50) and would have written a check for the balance owed (about $142) instead of giving them $1,949. Now, that would have given me a payment of $407 but I would not have parted with all that upfront CCR. Money down on a vehicle is not a good idea as it is a depreciating asset. If you total the vehicle, you necessarily risk losing all or part of the CCR.

    Again, I'm not sure why you gave them $1,949 especially if you knew that you were entitled to a $2,250 rebate.

    I've reconciled all the numbers except I can't account for the $29.35 of additional tax without seeing the dealer's worksheet.

  • bsyahbsyah Posts: 8
    I wanted to do it basically the way you suggest but had only been researching lease structure for about a week and needed to get 2 cars quickly because my wife's engine had died in her previous car.

    Unfortunately I was having a hard time finding out how taxes needed to be calculated and what did or did not have to be capitalized. It sounds like what you are saying is that nothing has to be capitalized if you don't want to except the negotiated price of the car.

    I gave them 1,949 because that is what they told me the money needed for taxes and fees was and based on my calculations I felt the combo of the payments and cash was in the range of what made sense based on my calculations coming in. Now after the fact I am just trying to reconcile the numbers exactly (I know reconciling before signing would have been the way to go) so I can be in a better position to do this next time.

    I have a question about your upfront numbers. With no cap adjustment (ie adj cap cost = base cap cost 29771.02) I get the 407.04 monthly but how do you arrive at the 1218 tax? is it based solely on the payments or is the incentive taxed?

    Thanks for the help on this.
  • delta737hdelta737h Posts: 603
    edited October 2012
    Actually, I did the tax calc on the fly. The tax amount should be...

    0.075 x (407.04 x 36 + 595) = 1143.63

    Yup, the acq fee is taxable. However, there may be other taxable items that I haven't considered such as title/reg/tire fees and incentives. Don't know if these are taxable or not in NYS. Generally, manufacturer rebates/incentives are taxable. However, dealer discounts are not taxable in most if not all states. If the $2,250 rebate is taxable, add another $168.75 for a total of $1,312.38. The question I would ask the dealer is whether or not there are any manadates as to how that rebate is to be used. Can the dealer simply write a check to the lessee for $2,250? Or, must the rebate be used to fund the lease?

    As you know, the selling price of the car has nothing to do with whether you capitalize items or not. You don't have to capitalize anything in a lease, except selling price of course. Two identities follow...

    Negotiated Sell price + Capitalized Amounts = Gross Cap

    Gross Cap - CCR = Adj. Cap.

    As you can see, sell price and capitalized amounts are only used to determine the gross cap; one has nothing to do with the other. If there are no capped items, then sell price = gross cap.

  • lazo23lazo23 Posts: 4
    edited November 2012
    Hello kirstie_h!
    The following is for a 2013 Acura MDX w/ Tech Package
    Just left the dealership and for the sake of sleeping well, would like to know if the deal I got was a good one... Every lease calculator i tried says it's an excellent one but I'm a bit pessimistic! Please help! You think you have it all under control but yet they find a way to get you! I tried to perpetuate the situation by continually asking for numbers but they like to be vague and quick to walk away! Took a lot of back and forth w/ the sales rep going to the Finance guy - annoying. Keep in mind I like to have low monthly payments even if it means putting a bit more down in the beginning though I've noticed not to many are into that. I'll write the final deal at the end;

    MSRP - 47890
    Cap Cost - 42321 (negotiated price only)
    Residual value - 26317
    Bank Money Factor - .0012 or 2.9 APR'
    Lease Term - 36/mo 10K miles

    I also had a 2010 TL w/ Tech w/ 4 payments left totaling $1796 I wanted to trade in.

    End of day, I walked out w/ 5K down and $465 per month inclusive of tax, first month payment, dmv and other misc fees.

    Also, in NY w/ a tax rate of 8.875%

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