Understanding your lease payment
The residual value is the single biggest lever on a lease payment: a higher residual means less depreciation to pay for. The table varies the residual on the worked example ($30,000 asset, 36 months, 6% APR).
| Residual value | Depreciation / month | Finance / month | Total payment |
|---|---|---|---|
| $15,000 (50%) | $416.67 | $112.50 | $529.17 |
| $18,000 (60%) | $333.33 | $120.00 | $453.33 |
| $21,000 (70%) | $250.00 | $127.50 | $377.50 |
- A higher residual lowers the payment but raises the buyout price at lease end; the residual is the lessor's projection and is fixed in the contract regardless of actual market value later.
- The payment shown excludes sales tax, acquisition and disposition fees, registration, and excess wear or usage charges, all of which appear in real lease contracts.
- The money-factor construction charges interest on (cost + residual), which is why the finance portion rises slightly as the residual increases even as the total payment falls.
- Educational estimate only — Regulation M requires consumer lessors to disclose the actual itemized figures before signing.
What is a lease payment?
A lease is a contract to use an asset for a set period without buying it: the lessee pays for the portion of the asset's value consumed during the term plus a financing charge, and returns the asset (or buys it at the residual value) at the end. The Federal Reserve Board's Consumer Leasing Act disclosures (Regulation M) require lessors to itemize exactly these components for consumer leases.
The depreciation component is the difference between the capitalized cost (the negotiated value of the asset at lease start) and the residual value (the lessor's projection of its worth at lease end), divided by the number of months. The finance component uses the money factor — the APR divided by 2400 — multiplied by the sum of the capitalized cost and residual value. That sum-times-money-factor construction is the standard industry shortcut for charging interest on the average balance outstanding over the lease.
Because the lessee pays only for depreciation plus financing rather than the full price, lease payments run lower than loan payments on the same asset — but at lease end the lessee owns nothing, which is the structural trade-off between leasing and buying.
How to use this lease calculator
- Enter the asset's capitalized cost — the negotiated value at the start of the lease, after any capitalized cost reductions.
- Enter the residual value the lessor projects at lease end (often quoted as a percentage of the original value).
- Enter the lease term in months and the annual interest rate; the calculator converts the APR to a money factor by dividing by 2400.
- Read the monthly payment, its depreciation and finance-charge components, and the total paid over the term.
- Worked example: a $30,000 asset with an $18,000 (60%) residual over 36 months at 6% APR (money factor 0.0025) costs $333.33 per month in depreciation plus $120.00 in finance charge — $453.33 per month, $16,320 over the lease.
The formula behind lease payments
The money factor is the APR divided by 2400. The factor of 2400 comes from converting an annual percentage to a monthly decimal (÷ 1200) and halving it (÷ 2) because the finance charge is applied to the sum of the starting and ending values — effectively charging the monthly rate on the average balance over the lease.
Depreciation divides the value consumed (capitalized cost minus residual) by the term. The two components add to the base monthly payment; taxes and fees, which vary by jurisdiction, are excluded.
Common mistakes
- Comparing a lease payment directly against a loan payment without noting that the loan ends in ownership and the lease does not.
- Ignoring the money factor's APR equivalent — multiply the money factor by 2400 to see the interest rate you are actually being charged.
- Focusing only on the monthly payment while overlooking fees, mileage or usage limits, and end-of-lease charges that change the true cost.
- Assuming a higher residual is unambiguously good; it lowers payments but makes the end-of-lease purchase option more expensive.
- Entering the asset's list price rather than the negotiated capitalized cost — the cap cost is negotiable just like a purchase price, and every dollar off reduces depreciation.
자주 묻는 질문
How is a lease payment calculated?
A standard lease payment is depreciation plus finance charge. Depreciation is the capitalized cost minus the residual value, divided by the term in months. The finance charge is the capitalized cost plus the residual value, multiplied by the money factor (APR ÷ 2400). For a $30,000 asset with an $18,000 residual over 36 months at 6% APR: $333.33 depreciation + $120.00 finance = $453.33 per month before taxes and fees.
What is a money factor?
The money factor is the lease industry's way of expressing the interest rate: the APR divided by 2400. A money factor of 0.0025 corresponds to a 6% APR. The division by 2400 combines converting an annual percentage to a monthly decimal (÷ 1200) with applying the rate to the average of the beginning and ending balances (÷ 2), which is why the finance charge formula uses the sum of capitalized cost and residual.
What is a residual value?
The residual value is the lessor's contractual projection of the asset's worth at the end of the lease term, often stated as a percentage of the original value. It determines how much depreciation the lessee pays for — a 60% residual on a $30,000 asset means only $12,000 of value is consumed over the lease — and it is typically the price at which the lessee may purchase the asset at lease end.
Why are lease payments lower than loan payments?
A loan payment repays the entire purchase price plus interest over the term; a lease payment covers only the value the asset loses during the term plus a finance charge. On a $30,000 asset over 36 months, a loan amortizes all $30,000 while a lease with a 60% residual amortizes only $12,000. The lower payment comes with no ownership at the end — the residual value stays with the lessor unless the lessee buys it out.
Does this calculator include taxes and fees?
No. It computes the base payment — depreciation plus finance charge — which is the figure lease disclosures build on. Sales tax treatment varies by state (some tax each payment, some tax the full price), and real leases add acquisition fees, disposition fees, and potential excess wear or mileage charges. The Consumer Leasing Act (Regulation M) requires these to be disclosed before a consumer lease is signed.
참고 자료
- Federal Reserve Board. Regulation M — Consumer Leasing (12 CFR Part 213) and official staff commentary.
- Federal Trade Commission (FTC). Leasing a car — consumer guidance. consumer.ftc.gov.
- Federal Reserve Board. Keys to Vehicle Leasing — a consumer guide. federalreserve.gov.
- Brealey RA, Myers SC, Allen F. Principles of Corporate Finance. 13th ed. McGraw-Hill Education, 2020 — leasing chapter.