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How Do I Calculate Monthly Lease Payments?

CarMan@EdmundsCarMan@Edmunds Posts: 38,515
For some reason my original post that explained how to calculate monthly lease payments seems to have disappeared in our transition to the new Town Hall software. Given this topic's popularity and numerous requests to bring it back, I have decided to create a new discussion on the subject.

How to Calculate Monthly Lease Payments

Step 1: Calculate the Capitalized Cost

To calculate a vehicle's capitalized cost, take its selling price subtract your down payment.

Step 2: Calculate Your Vehicle's Residual Value

To calculate your vehicle's residual value, multiply its full MSRP (note some banks will only allow consumers to residualize certain options or will place a cap on the amount of money that can be residualized for each option) times its residual value percentage. The residual value percentage is determined by the bank that you are leasing through.

Step 3: Determine Your Vehicle's Total Depreciation

To determine your vehicle's depreciaiotn, subract its residual value from your capitalized cost.

Step 4: Determine Your Vehicle's Monthly Depreciation

To figure out your car or truck's monthly depreciation, divide the total depreciation that you just calculated by the number of months that you are going to lease it for.

Step 5: Determine Interest Charges

To determine the interest portion of your monthly lease payment add your vehicle's capitalized cost and its residual value and then multiply the result times your bank's lease money factor.

Step 6: Calculate Monthly Payment

Finally, add the results from Step 4 (the monthly depreciation) and Step 5 (the monthly interest charge) to come up with your pre-tax monthly lease payment.

Smart Shoppers / FWI Message Boards


  • golicgolic Posts: 714

    You rock. this saved me a few grand. And to show my appreciation I put an excel spreadsheet together to do perform this calcualtion.

    Anyone who emails me, can have it for free.

    Never let the dealer figure out your lease payment - when you udnerstand how it works and can do this yourself- it will save you THOUSANDS!!
  • biancarbiancar Posts: 913
    Hi Golic,

    Could you shoot me a copy of that spread sheet too, please?

    I've never leased a car before, but am considering it now. In general terms, it seems that if the lease is a good deal, then probably it has a high residual which would make buying it at the end of the lease a bad deal. But with a low residual, then buying it at the end might make more sense.

    Is that a correct interpretation of the overall principle?

    I'm not sure it's for me, I usually keep my cars a long time, but maybe a lease plus a buy at the end *might* make sense, depending how numbers work out.
  • golicgolic Posts: 714
    Its on its way, feel free to email back if you have questions.
  • golicgolic Posts: 714
    Yes, you have it right, but let me rephrase it.

    You will always have the option at the end of the lease to buy the vehicle at a stated price that will not change. When you lease the vehicle the finance company estimates the value of the vehicle at the end of the lease.

    Take my Pilot, full MSRP was 33,600. With my 36/15K lease the value will be 18,480.

    If the pilot holds it value and lets say it is worth $20,000, I can buy that vehicle for only $18,480 OR I can buy the vehicle for $18,480, then trade it in on my new vehicle and put $1,520 in my pocket PLUS save sales taxes on the trade in.

    If at the end of the lease the Pilot is only worth 17K, I just give it to the dealer and walk away.

    IMO, leasing should not be done unless you running the car through a business or you simply must have a new car every 3 years and you can keep it in good shape and meet the milage requirements. YMMV
  • As have seen several people, owning all variety of cars/trucks/SUVs buy a car at lease end and only one of them has ever been right side up in it.

    The guy that was right side up had a Very sharp 4wd Toyota Tacoma extended cab manual transmission which I think was a 1999. It had close to a 100,000 miles and was still worth over 10,000 dollars on a trade. He owed 9,300 though because he leased first then bought out the lease.
  • golicgolic Posts: 714
    It happened to me on the first lease I did. We purchased a 2000 Honday Ody in 1999 when everyone was selling them for MSRP +, I was able to get it at MSRP and when the lease ended in 2002 the cars were still so hot, that the we had tradin offers from $2000- $2500.

    We ended up with a new Ody and did the buy/trade-in at the dealership.

    In all honesty, I have considered this my once in a lifetime lease victory.
  • Hey golic when you get a chance email me your lease spread sheet. I would like to see how it matches up versus our mainframe based lease calculator.
  • subearusubearu Posts: 3,613
    how about just sharing the lease spreadsheet with the forum? I'm sure others would benefit from using it to calc their own lease scenarios.

  • golicgolic Posts: 714

    If I knew how to attach the spreadsheet I would.

    Basically all I did was take the instructions from Car_Mans opening post and put it into a workable spreadsheet. I then fine tuned it to apply to my situation and then tested it against other web based applications like lease calculater to make sure it worked.

    Once you see it on paper, it is actually very easy to work out the payments with a pencil and paper. But I wanted to take my laptop to the dealer and crunch the numbers with him to verify everything.
  • CarMan@EdmundsCarMan@Edmunds Posts: 38,515
    Thanks golic. I'm glad that you found my post so helpful.

    Smart Shopper / Prices Paid Forums
  • citymomcitymom Posts: 8
    Hey Golic.........

    Can I get that spreadsheet?

    Thanks a million.......citymom
  • golicgolic Posts: 714
    I would be happy to citymom, email me and I will send it to you. Your email is not listed here.

  • biancarbiancar Posts: 913
    Golic, does your e-mail go by "trackwreck" or something like that?
  • krumb2krumb2 Posts: 2

    You mention that this is a pre-tax monthly lease payment.
    I live in IL. On a recent lease they charged full tax on the purchase price of the vehicle. Is this legitamite? Also, I did my preplanning on Edmunds lease calculator and in putting the same info here as on the Toyota dealership program, the difference was around $60/mo they were higher. Any possible explanation for this. Thanks.

  • golicgolic Posts: 714
    Welcome to Illinois.

    If I can jump in (with all due respect to Car_man) This is confusing, so follow me. IL looks at the leasing company (Lessor) as the "true" owner of the vehicle and is one of only 2 states (texas being the other I believe) that imposes a tax on the "sales" price of the vehicle.

    Which in turn the leasing company (lessor)passes on to you the driver (the lessee). So technically you are not being charged the tax, only reimbursing the Lessor for his tax cost.

    Now, are you ready for this? If you at the end of the lease decide to purchase the vehicle for it's residual value, you are subject to sales tax on the entire purchase amount (ie residual value).

    This is one of the many wacky ways IL operates its sales and use tax.

    As far as your $60 issue, did you factor in the lease inititian fee?? This was something I forget that Honda hit me up with..or did you get NAV, RES or some other funky options wich will change the residual %? Just some thoughts.
  • CarMan@EdmundsCarMan@Edmunds Posts: 38,515
    Hello Krumb. I have heard that Illinois has come unfavorable sales tax rules as far as leasing vehicles is concerned. I believe that your state does indeed charge sales tax on the entire purchase prices of lease vehicles. You may be able to find out more information on how sales tax is calculated in your area by visiting the following sites: Illinois Department of Revenue or CyberDrive Illinois.

    One possible reason why the lease payment that you cane up with is different than the one that the dealership quoted you is the strange way that Toyota Financial Services calculates vehicles' residual values. While most banks allow the full residualization of most factory-installed options, TFS limits the number of and prices of options that can be residualized.

    Smart Shopper / Prices Paid Forums
  • Karen_CMKaren_CM Posts: 5,020
    ...please do not post your email address within a message. This is an invitation for those who may use it maliciously.

    Thanks for your cooperation!

    Community Manager If you have any questions or concerns about the Forums, send me an email,, or click on my screen name to send a personal message.

  • Can you please send me your spreadsheet? Thank You, you are a life saver!
  • mkfxmkfx Posts: 26
    Can you please send me this spreadsheet?
  • golicgolic Posts: 714
    You will need to email me, my email is not private, just click on my link.

    I would be happy to send, but your emails are "private" so I have no way of knowing how to email you.
This discussion has been closed.