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The Internet offers a quick, efficient way to request auto lease quotes from multiple dealers. We recommend clicking on each of the links below to harvest two or three quotes before setting off to do battle.

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Calculating the Monthly Payment

No discussion about leasing would be complete without an explanation on how the monthly payment is calculated. Once you understand the terms and their meaning, calculating a lease payment is relatively simple.

Constant Yield Method
This method is used by most major leasing companies with the possible exception of Ford Motor Credit (see below). To calculate the monthly payment using the constant yield method, use the steps below:

STEP 1: Determine the Adjusted Cap Cost:

Agreed Upon Value (negotiated purchase price)

PLUS  Fees and taxes that are rolled into the lease

EQUALS Gross Capitalized Cost
MINUS  Cap Reduction Payment
EQUALS Adjusted Capitalized Cost


STEP 2. Determine the monthly depreciation:

Monthly Depreciation = (Adjusted Cap Cost - Residual) / Number of Months

STEP 3. Determine the monthly finance charge (sometimes called the lease charge):

Monthly Finance Charge = (Adjusted Cap Cost + Residual) x Factor

STEP 4. Add the monthly depreciation to the monthly finance charge to obtain the monthly payment before taxes.

Monthly Payment = Monthly Depreciation + Monthly Finance Charge

If you live in a state that taxes only the payment, you can calculate the payment with sales tax. Simply multiply the payment by 1 plus the sales tax rate (e.g., 1.06 for a state with a 6% tax rate).

The plus sign in the formula in step 3 for the monthly finance charge is not a typo. The finance charge is based on the sum of the cap cost and the residual, not the difference. People are used to hearing that in a lease you only "pay for only the part you use" and hence should only pay interest on the depreciation (difference between cap cost and residual). This is not the case at all. Instead, the best way to think of a lease is like a balloon loan where the principle is the cap cost and the balloon payment is the residual value which is made by turning in the car.

Expert Lease Pro Software
Often you know all the terms of the lease except one. With the above equation one can solve for any one unknown variable. But the math can get a little messy for some folks. If this is the case, check out Expert Lease Pro software published by Chart Software. Not only will this excellent program help you with the math, but it comes with a war chest of tools and data to help you negotiate the sharpest deal and to help you make the right lease/buy decision. Click above to learn more about Expert Lease Pro.



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