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How to Calculate Monthly Lease Payments



  • karl_ekarl_e Posts: 3
    Hi. I’m new to Edmunds and the knowledge I am gathering is great! Two quick question; is cap cost the same as selling price (minus incentives, down payment, left over from trade in.). Is base lease rate and money factor the same? If I have a base lease rate of 2.0 what am I calculating that with?

  • delta737hdelta737h Posts: 625
    edited June 2011
    Welcome to Edmunds, karl!

    Cap cost and sell price are, conceptually, two different things. Let's look at some terminology...

    The agreed upon value is the FRBB's Regulation M term for selling price. If amounts are capitalized (i.e., financed) in the lease (e.g., acquisition fee, taxes, etc.), then those amounts are added to the agreed upon value. The sum is called the gross capitalized cost. If there are cap reductions (e.g., cash, trade credit, incentives), then these amounts are deducted from the gross cap. The difference is called the adjusted capitalized cost. If there are no amounts financed and no cap reductions, then the agreed upon value, gross cap, and adjusted cap will all have the same value.

    The base lease rate is that rate with zero dealer profit and is offered to those with outstanding credit. The base rate, AKA buy rate, doesn't mean the dealer doesn't make a profit on the deal. It only means that they don't make a profit on the financing piece. Money factors are generally based on a tiered structure. For example

    0.00200 + 0% reserves (0 dealer profit)
    0.00220 + 1% reserves
    0.00240 + 2% reserves

    Some fund providers incorporate a fixed dollar amount into their money factors which means that the dealer earns a profit regardless of the money factor. I think American Honda Finance does this but I'm not not sure.

    A base rate of 2 may mean a money factor of 0.00200 or, it may mean an interest rate of 2%. And so, you need to get clarification. Ally Bank (GMAC) is one of only a few fund providers that uses an interest rate.

    The money factor is used to compute your monthly payment...

    Payment = F x (C + R) + (C - R)/N

    F = Money Factor
    C = Adjusted Cap Cost
    R = Residual Value
    N = Term (months)

    If you have an interest rate, it can be converted to a money factor approximation by simply dividing the interest rate by 24. So, a 2% interest rate equates to a money factor of approximately 0.02/24 = 0.00083. By the way, money factors are formatted as 0.00XXX.

    Hope this helps.

    The AutoLeaseGeek
  • karl_ekarl_e Posts: 3
    Yes. It cleared up the difference. Thank you for the details.
  • You could do ALL of this with a calculator and possibly mess up, or you could punch the numbers into 's calculator">link title
  • im_brentwoodim_brentwood Posts: 4,883
    In New Jersey you only pay sales tax on the difference between the sales price (gross cap) and the residual, NOT the payment.


    Car is $20,000
    Acq fee is $595

    Gross cap cost $20,595

    residual is $11,000

    $9,595 is taxable.

    Basically you're only paying sales tax on the depreciation, NOT the depreciation plus interest.
  • delta737hdelta737h Posts: 625
    edited July 2011
    Unless there have been NJ legislative changes recently and, with all due respect, consumer retail leases in NJ are taxed in much the same way that they are here in Ohio. In Ohio and NJ, tax is levied on the sum of the monthly payments, including interest. To wit and per

    "Agreements for a term of more than six months: The lessee pays the sales tax to the lessor either on the original purchase price of the leased property or on the total of the periodic payments required under the lease agreement. (Whether the tax will be calculated on the purchase price or the total of the periodic payments is negotiable between lessor and lessee.)
    Interest or finance charges will not be excludible from the lease payments when calculating the amount of tax due."


    The AutoLeaseGeek
  • im_brentwoodim_brentwood Posts: 4,883
    It's different for automobile sales.

    Pararaph 63 on page 16. Legislation has been effect since at least 1989. There's a more concise explanation, but it's not on a public website (DealerTrack)

    I work New Jersey lease deals every day, it's important to know this as a number of unscrupulous dealers will use the other method during negotiations to pick up gross.
  • delta737hdelta737h Posts: 625
    edited July 2011
    Unless I'm missing something, there is nothing in the New Jersey Sales and Use Tax Act, Streamlined Legislation (P.L. 2005, c. 126, effective October 1, 2005, that suggests or implies that SSUTA does not apply to retail automobile leases.

    The following document...

    Streamlined Sales and Use Tax Law: Motor Vehicle Leasing Issues
    (Based on Questions from the National Vehicle Leasing Association)

    The information below applies to leases entered into on and after 10-1-05, which is the effective date of the adoption of the streamlined sales tax provisions.

    at paragraph (8) provides...

    8. What is the tax base under the total lease payments method?

    For purposes of the total lease payments method, is the amount of the lessee’s trade deficit paid off through the lease excluded from the tax base? Yes, the amount of the trade deficit is excluded.

    Are separately stated delivery charges excluded? Delivery charges incurred to transport the vehicle to the dealer/lessor’s place of business are included in the tax base. Prior to October 1, 2006, delivery charges that related to delivery of the vehicle by the dealer/lessor directly to the lessee were excluded from the tax base. On and after October 1, 2006, delivery charges that relate to delivery of the vehicle by the dealer/lessor directly to the lessee are included in the tax base.

    Are separately stated interest, financing, and carrying charges excluded? No, such charges are not deductible in determining the tax base under the lease payments method.

    Also, see...

    You cited an old document from 1989. The revised (SSUTA 2005) seems to supercede the old (1989). Accordingly, and without definitive proof to the contrary, I would reasonably assume that total payments are taxed, including interest, per SSUTA (2005). I would like to see the more concise explanation from DealerTrack and confirm the same with the NJ Dept. of Revenue. Until then, I have little choice but to assume that NJ currently taxes retail automobile leases at 7% using the total number of payments, including interest, as the tax base unless, of course, the code of regulations state otherwise.

    If what you're saying is true, then it's a half-assed way for the NJ Dept. of Revenue to do business as there doesn't seem to be any documentation regarding your claim.... at least not at the NJ website that I can see. Of course, definitive proof can be found in the NJ Code of Regulations as that's the final authority and not the website.

    What you're claiming is that tax is levied on the depreciation amount disclosed in the lease. If the tax rate is 7% and the depreciation amount is $8,000, then the sales tax is $560. I assume that NJ defines depreciation as the difference between the adj cap and the residual per the FRBB's Reg. M. In addition, cash cap reductions (e.g, customer cash, cash incentives, loyalty cash, etc.) are taxable and trade deficits (i.e., negative equity) are not taxed as well as trade credit. Also, acquistion fees are taxed seperately if not included as an amount capitalized.

    Just out of curiousity, have you made tax calculations manually to confirm that your software is computing tax on just the depreciation which excludes interest charges? Who is your software provider?

    The AutoLeaseGeek
  • im_brentwoodim_brentwood Posts: 4,883

    The state itself is half-assed, as you say, particularly the MVC (Which seems to make up rules as it goes along).

    Unless the laws have recently changed dramatically, New Jersey has historically only charged sales tax on the principal, not the interest.

    Bank fees have always been taxable, Doc fees and MV fees are not taxable; warranties, etc are.

    Trade differences, irrespective of equity or not, are tax exempt.

    Granted the deals that I usually work are highly subvented, rate driven programs where the total lease charges are minimal, but it's still worth bearing in mind. I do know that NJ as well as other states have different ways of computing taxes on leases, it's possible that upfront taxes may well be different than financing them, there was, I do recall, a loophole in Illinois law that allowed this at one point.
  • delta737hdelta737h Posts: 625
    edited July 2011
    You said...

    "Unless the laws have recently changed dramatically, New Jersey has historically only charged sales tax on the principal, not the interest. "

    That's true but, apparently, SSUTA (2005) changed all of that. I've seen several different NJ dealer (Honda, Infiniti, GMAC (Ally), FMC) lease worksheets, over the last 22 months, compute sales taxes that comply with the SSUTA (2005) legislation in which interest is taxed. Moreover, sales tax is disclosed in the lease agreement which triggers a paper trail. If a dealership consistently over taxes or under taxes, and has the misfortune of being selected for a state audit, it could find itself in a very taxing situation (pun intended). And so, it's extraordinarily unlikely, and a real stretch, to say that these dealers are pocketing the alleged excess tax. Not only is it wrong and downright immoral, no dealer with any brains is going to risk engaging in such illegal practice. Furthermore, there is no way on earth that a fund provider like Honda or GMAC is going to permit sales tax to be computed in a way that violates state laws... ditto for the software providers. Otherwise, it would create a liability culminating in a river of lawsuit filings each hoping to be eventually certified as a class action.

    There are four (4) methods used to compute sales tax…

    (1) Tax lease payment streams as they are received. This is the easiest and by far the most commonly used method in such states as CA, FL, PA, and WA

    (2) Tax selling price (IL, MD, NJ, SC, TX, VA)

    (3) Tax the sum of the taxable payments (MN, NJ, NY, OH)

    (4) Tax depreciation (CO)

    Yup, in NJ there are two methods, both negotiable, in which leases can be taxed. One is tax levied on the selling price (i.e., agreed upon value); the other is tax on the total payments. I can't imagine why any consumer would opt to be taxed on the sell price as it's always cheaper to tax the total payments.

    Depending upon how the lease is structured, the sales tax calculation can be quite complex especially in NY. To compound the problem, states have different regulations regarding the taxability of fees and rebates. Some tax acquisition fees and rebates; others don’t. Those that tax depreciation often define depreciation differently with respect to one another. Some define it as the difference between the adjusted capitalized cost and the residual while others define it as the difference between the sell price and residual. Some use the mathematically correct formulas to compute taxes in those instances where taxes are capped in the lease; others don’t.

    In NJ and Ohio, it's illegal to levy sales tax on sales tax. So, whether you pay all the sales tax at lease inception or, finance the tax in the lease, the amount of sales tax liability is the same either way. However, in NY , it's a different story. It's amazing to me why the constitutionality of sales tax on sales tax hasn't been challenged in both federal and NY state courts.

    The AutoLeaseGeek
  • kyfdxkyfdx Posts: 128,361
    I do think NJ lease taxation has changed in the last couple of years..

    As mentioned, it used to be strictly on depreciation, paid upfront... Now, it's on total payments, again paid upfront...

    That's just from anecdotal evidence (you know, reading hundreds of posts, each day).


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    Edmunds Moderator

  • is residual calculated as a percentage of MSRP or capitalized cost. Im looking at a kia sorento, and it seems they calculate the residual from the capitalized cost, not the msrp (hence raising the monthly lease payments). This seems to go against most of what i know, is this a Kia practice or is it industry standard or am i missing something?

  • kyfdxkyfdx Posts: 128,361
    Residuals are calculated on MSRP.

    Some makes (Toyota, for example) restrict the dollar amount of options that can be residualized. You can't really calculate the residual on a Toyota... you just have to get it from the dealer.

    I haven't heard of Kia doing that, though..

    Did you get a good deal? Be sure to come back and share!

    Edmunds Moderator

  • I admit I have probably never gotten a really good deal on a car, and have gotten REALLY ripped off more than once. I have done better on my last few purchases, since I started researching before my purchase, but unfortunately my most recent purchase a certified Yukon Denali, was a LEMON. I have literally had things falling off this SUV. It has had to have more repairs in the 6 months that I have owned it than all the cars I have ever owned put together! The warranty is only good for 6 months, and there are some major concerns about what I will do then. The dealership I purchased it from has been a nightmare...

    I have about $8,000 ( I am being conservative) equity in the Yukon, and am ready to just trade it in for a lease. But to be honest I am scared to death to make another mistake. I am tired of being ripped off. I need something that seats more than 5 people ( we are a family of five) and I carpool a lot. So I am looking at an SUV or crossover of some type.

    I have read through some of these posts and the math just makes my head hurt. I see these adds for low leases but they are always for a stripped down model. I tend to like the higher end trims. Also I only drive about 10,000 miles a year.

    Where do I start?
  • im_brentwoodim_brentwood Posts: 4,883

    First, in some states, trading in an owned vehicle on a lease will give you a tax credit.

    Second, I wouldn't put any more than $2-3k of your truck's equity down on a lease. Most advertised lease payments require a lot down, are plus tax, MV, dealer fees and include rebates that you may not qualify for. Read the fine print.

    A good rule of thumb is that every $1k out of pocket on a 3 year lease is about $30/mo in payment.

    So if the ad is $5k out of pocket, and you want to throw $2k out of pocket, assume that the $299 will be more like $389.
  • apj74apj74 Posts: 4
    I am getting into a lease for a 2012 Passat SE (automatic 2.5L) with an MSRP of ~25700 for 297.50/month for 36 months with 36000 miles. Any comments on this deal?
  • Hi, I need to make a deal by tomorrow and was wondering if anyone can tell me these numbers are correct. Its on a lexus CT200H but the numbers look fishy to me.

    I have tried alot of lease calculators but can't get the numbers they are getting

    Vechical price - $36,509.00
    Discount - $3,233.03
    Rebate - $750

    Total saling price - $32,525.97

    Sales tax - $2094.87
    Tag/title - $298.75
    Dealer fee - $699.99

    Balance Due - $35,626.04

    money factor is .00160
    Residual is - 62%
    I live in florida and I'm putting down $5k and they say my monthly payment will be $365/month for 36/months 10k miles lease

    I can't get the same numbers as them, at first I asked why they charge me tax on the whole vechical if i'm leasing, but they say when they compute it, it's without that tax.

    Can someone compute this for me and see what my monthly should be? The $5k down, part will be 1st months payment. - this is for a lexus
  • sebring95sebring95 Posts: 3,241
    I can make the numbers work almost to the penny if the residual is based on the selling price (not MSRP). Are they stating the 62% residual or are you backing into that? Do they give a stated $$ amount for the residual and if so, what is that amount? I'm not familiar with Florida sales tax so I'm not sure if it's charged on the full sale amount or just the payment. If it's not on the full sale amount then we're off by an even wider margin unless the $365 includes the sales tax.
  • qbrozenqbrozen Posts: 26,115
    According to the info I found online, FL calculates the tax on the lease payment. So you can just take that $2094.87 out of your equation. Calculate the payment, then add your normal sales tax rate to the payment.

    Your residual should be 22635.58. Is that correct?

    '10 Equinox LS; '08 Charger R/T Daytona; '67 Coronet R/T; '14 Town&Country Limited; '18 BMW X2. 49-car history and counting!

  • yes residual is 22635

    now they said they used a money factor of .0026

    and they gave me a new quote with .0016 (that's what they said)

    3919 down will be $339/month

    that 3919 down includes doc fees, tag and 1st month payment

    does that first money payment make a diffrence? that's confusing me

    thanks for the reply
  • yes residual is 22636.58

    is it better for me to pay off the dealer fees and tag fees first instead of putting all my money down as a cap reduction?

    They are saying I can't use my rebate in the net cap cost total, i can use as a cap reduction though, isn't that same thing?

    now they are charging me aqusation fees also since I found their numbers were wrong. Should i just walk away from them? they are puting some insurance fees etc in now without showing me the total selling price.
  • qbrozenqbrozen Posts: 26,115
    yes, walk away.

    '10 Equinox LS; '08 Charger R/T Daytona; '67 Coronet R/T; '14 Town&Country Limited; '18 BMW X2. 49-car history and counting!

  • Kirstie_HKirstie_H Posts: 11,077
    Totally agreed!

    Leasing can be VERY complicated and confusing, even if everything is transparent, and especially for first-time leasers. If you are not completely sure about the deal and the dealership DO NOT lease from them.

    Start over with another dealership. Feel free to come back here as many times as you need to and ask questions until you find a deal that you feel comfortable with. We have several members who are knowledgeable and willing to help you get the right deal - and thanks to qbrozen for helping this member!


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  • qbrozenqbrozen Posts: 26,115
    exactly as kirstie said... its complicated. And, unfortunately, some dealers use that to their advantage and try to make it even more complicated and confusing so they can milk you for more money. Don't let them do it to you!

    '10 Equinox LS; '08 Charger R/T Daytona; '67 Coronet R/T; '14 Town&Country Limited; '18 BMW X2. 49-car history and counting!

  • jsl1949jsl1949 Posts: 11
    Just leased 2012 CTS Premium MSRP $49,165, total drive off $1500, 39 months, 12k, $525 including tax. Used Costco buying service. No hassle. Los Angeles.
  • pknopppknopp Posts: 13
    The problem with leasing is getting the information one needs to compare leases. It's easy to find what your interest rate will be. It's not so easy to get the money factor or residual in a lease.

    You ask the dealer what the money factor is and they look at you like you've asked them something offensive.
  • nyrgoal99nyrgoal99 Posts: 7
    edited March 2012
    I dont think this is a good deal but I want some advice

    Discounted to:$25,081
    Tax Included: $12,23

    Payment options

    371 x 36 months, 0 Down
    171.31 x 36 months, $6446.17 down

    12K miles
    Residual $17460
    4.8% financing on lease

    My feeling is that the 4.8% is high, and I dont understand the tax. 1,200 seems really high, plus I have a vehicle worth 9-10K to trade in that I do not think they factored in.

    Thoughts? What should I be getting this car for?
  • Hi all,

    I am looking to lease a 2012 lexus or audi and would like your opinions. A friend of mine just got a lexus ES 350 touring edition (MSRP 40275) for 7000$ down and 300/month. Is that a good deal? This is in New jersey. While I am currently leaning towards the lexus I want to know if the above is a good deal and if I should try to get the same.

    What are your thoughts?

    Thank you for your help.
  • Kirstie_HKirstie_H Posts: 11,077
    Since your question is about a specific vehicle, you're better off posting in our Honda CR-V Lease Questions discussion. That's where you'll see other members posting their deals on CR-V leases.


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  • Kirstie_HKirstie_H Posts: 11,077
    This topic is more for questions about how the lease deal is calculated. For specific vehicles, we have "lease questions" discussions for each make/model where you can ask about pricing, etc., for a particular model.

    Here's the Lexus ES lease discussion:

    One tip - putting $7,000 down on a lease is NOT a good idea.


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