With a standard lease, most of your monthly payment goes towards the amount that the vehicle depreciates over the lease term. You also pay a monthly fee to the lender for renting the vehicle.
Here are the steps commonly involved in calculating the monthly lease payment:
You and the leasing company negotiate the cost of the vehicle minus any trade-in, down payment, or rebate. For example, $20,000.
You decide on the lease term, typically two to four years. For example, three years is 36 months.
The leasing company determines what the vehicle will be worth at the end of the lease, known as the “residual value.” For example, $8,000 is the residual value.
The amount of depreciation is calculated by subtracting the residual value. For example, $20,000-$8,000=$12,000 of depreciation.
The monthly payment is calculated by adding the estimated amount of depreciation during your term plus the rent charge, taxes and fees, and dividing that amount by the number of months in the lease term. For example, $12,000 divided by 36 months = $333.
You should question how accurate the residual value estimate is because that value is used to determine the monthly payment and also the amount you pay if you decide to purchase the vehicle at the end of the lease.
Learn how to calculate a monthly payment when purchasing a vehicle