Car Lease Payment Factors
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If you plan on leasing a car, you should probably know what your money is going toward. Unlike the monthly payments for a purchase, car lease payments have a few factors that are unique to this agreement. Here is a detailed break down of the factors that are used to calculate monthly car lease payments.
The number of months you will be leasing the car is key in calculating your lease payments. Generally, you can expect that the longer your lease, the lower your monthly payments will be.
For more information about leasing terms and conditions, check out our Car Lease Contracts page.
Vehicle Price & Residual Value
Both the Manufacturer's Suggested Resale Price (MSRP) and the negotiated price of your vehicle play a part in your monthly payments. The MSRP is used for determining the money factor and the residual value of your vehicle. Your monthly lease payment will not be calculated based on the MSRP alone, but on the final price you and the dealer agree upon. This is important to pay attention to when signing your lease agreement, as it can save you money.
This is the value the dealer determines your car will be worth at the end of the lease. In other words, this is what you would pay if you decided to buy your car when your lease is up.
The dealer will use a standard equation for calculating the residual value of your by multiplying the MSRP for your vehicle by a residual value percentage. You can find further details on our guide to leasing residual value.
Your credit score can make a big difference in your monthly payments, and it's one factor you have little control over going into your negotiations. Finance companies use your credit score to determine the interest rate associated with your monthly payments.
If you have a top tier credit score, a down payment might not be required. But when calculating your lease, a down payment will offset the negotiated price of the car and lower your monthly payments.
Visit our guide to Leasing Down Payments for more information on how a down payment may or may not be the best decision for you.
This number, also called the lease factor, is the interest rate used in calculating your monthly payments. This number is usually not shown on any line item in the final lease agreement, so to find out what your money factor is, contact the financing company or ask the dealer to show you the number before you sign.
Taxes & Fees
Just like buying a car, your lease payment factors in your state's sales tax. But what you might not expect to see are the depreciation and finance fees.
The depreciation fee is a portion of your payment that covers the lender for the value your vehicle will lose during the terms of your lease. The number of miles you agree to drive during the duration of your lease agreement can play into this number. It is then divided among the number of months you're leasing the car.
The finance fee is similar to interest rate on a car loan. It is a portion of your monthly payment that pays the company you're leasing from for borrowing their money.
Now that you're acquainted with the payment factors that go into calculating your monthly lease payments, check out our Leasing Center for more information on aspects of leasing a car.