Lesson Plan for Determining Your Lease Payment
Making a well-informed selection is easier when you know how to calculate your monthly lease payment. Still, most of us prefer to let the dealer handle the “complicated” math on our lease contracts, such as calculating the payment formula.
Honestly, it’s not that tough! Everything else becomes clear once you grasp the mathematical concepts behind your monthly payments. Important numbers here are:
The list price or sticker price of the vehicle is known as the manufacturer’s suggested retail price, or MSRP for short.
Your lease’s interest rate is based on this monetary factor. Get this rate disclosed by your dealer before you sign a lease.
Length of Lease: The dealer’s rental period for the car in months.
What the car is worth when the lease is over is called the residual value. Once again, the dealer is a good source for this number.
The vehicle’s sticker price is $25,000, and the money factor is 0.0034, which is commonly stated as 3.4%. Let’s now figure out an example of a lease payment using this information. With a projected residual percentage of 55%, the scheduled lease has a duration of more than three years.
Figure out how much the car is worth in its residual state first. You find the residual percentage and increase it by the MSRP:
eleven grand ($20,000 x.55).
Upon completion of the lease, the vehicle’s value will be $13,750, allowing you to utilize:
$10,000 less $11,000 equals $9,000
With this $9,000 spread out over 36 months, our monthly payment will be:
$250 is the result of dividing $9,000 by 36.
The initial component of the monthly payment, known as the monthly depreciation fee, is this.
The interest charge is factored into the second component of the monthly payment, which is called the money factor payment. To get it, you take the residual value, add the MSRP, and then multiply it by the money factor:
105.4 is the result of multiplying ($20,000 + $11,000) by 0.0034.
In the end, we may estimate the monthly payment by combining the two numbers:
With a total of $250 plus $105.4, the total is $355.4.
In brief, the formula for the example is as follows:
1. Cost of Depreciation Every Month:
Residual Value = MSRP x Depreciation Percentage
Depreciation over the lease duration equals MSRP minus residual value.
The depreciation fee for each month is equal to the sum of the depreciation over the lease term and the number of months in the lease.
2: Rate for factor money paid monthly
(List price plus market value) Payment for the money factor equals the X money factor.
3-Monthly Payment Example:
Monthly payment equals depreciation charge plus money factor payment.
Taxes, fees, rebates, and other incentives are not factored into this simplified computation. The computation provides a general notion of the amount you can expect to spend each month on the lease of the specified car.