Break a lease into its real parts — depreciation, finance charge and tax — and see the money factor as a plain APR.
Monthly lease payment
$504
Depreciation + finance charge + tax.
Value lost, per month.
The lease's interest cost.
All payments plus down.
Car's value at lease end.
That breaks into $328 of depreciation (the value the car loses while you drive it), $146 of finance charge, and $31 of tax. Over the 36-month lease you'd pay $20,145 in total including your $2,000 down — an effective $560 a month.
The "money factor" is just interest in disguise — multiply it by 2,400 to get the equivalent APR, here 6%. Always convert it so you can judge whether the lease financing is competitive. A money factor above roughly 0.0030 (≈7.2% APR) is worth questioning, and like any rate it's better with strong credit.
Leases cap your annual mileage — typically 10,000–15,000 miles — and charge $0.15–0.30 per mile over. Excess wear, a disposition fee at turn-in (often $300–500), and an acquisition fee at signing all add to the true cost. If you drive a lot or are hard on cars, those fees can erase a lease's monthly-payment advantage.
Leasing usually means a lower monthly payment but no ownership — you hand the car back at lease end with nothing to show for it. Buying costs more monthly but builds equity. Price the same car as a purchase to compare the real long-term cost.
Auto loan calculatorWorked scenarios with the full analysis, so you can see how the numbers move before entering your own.
A typical 3-year lease on a mid-priced car with a standard residual and money factor.
Monthly lease payment
$504
That breaks into $328 of depreciation (the value the car loses while you drive it), $146 of finance charge, and $31 of tax. Over the 36-month lease you'd pay $20,145 in total including your $2,000 down — an effective $560 a month.
The "money factor" is just interest in disguise — multiply it by 2,400 to get the equivalent APR, here 6%. Always convert it so you can judge whether the lease financing is competitive. A money factor above roughly 0.0030 (≈7.2% APR) is worth questioning, and like any rate it's better with strong credit.
Leases cap your annual mileage — typically 10,000–15,000 miles — and charge $0.15–0.30 per mile over. Excess wear, a disposition fee at turn-in (often $300–500), and an acquisition fee at signing all add to the true cost. If you drive a lot or are hard on cars, those fees can erase a lease's monthly-payment advantage.
A sign-and-drive lease with nothing down, raising the monthly payment but reducing upfront cash and risk.
Monthly lease payment
$569
That breaks into $383 of depreciation (the value the car loses while you drive it), $151 of finance charge, and $35 of tax. Over the 36-month lease you'd pay $20,467 in total including your $0 down — an effective $569 a month.
The "money factor" is just interest in disguise — multiply it by 2,400 to get the equivalent APR, here 6%. Always convert it so you can judge whether the lease financing is competitive. A money factor above roughly 0.0030 (≈7.2% APR) is worth questioning, and like any rate it's better with strong credit.
Leases cap your annual mileage — typically 10,000–15,000 miles — and charge $0.15–0.30 per mile over. Excess wear, a disposition fee at turn-in (often $300–500), and an acquisition fee at signing all add to the true cost. If you drive a lot or are hard on cars, those fees can erase a lease's monthly-payment advantage.
A vehicle that holds its value well, where a high residual keeps the depreciation portion low.
Monthly lease payment
$792
That breaks into $467 of depreciation (the value the car loses while you drive it), $274 of finance charge, and $52 of tax. Over the 36-month lease you'd pay $31,515 in total including your $3,000 down — an effective $875 a month.
The "money factor" is just interest in disguise — multiply it by 2,400 to get the equivalent APR, here 7.20%. Always convert it so you can judge whether the lease financing is competitive. A money factor above roughly 0.0030 (≈7.2% APR) is worth questioning, and like any rate it's better with strong credit.
Leases cap your annual mileage — typically 10,000–15,000 miles — and charge $0.15–0.30 per mile over. Excess wear, a disposition fee at turn-in (often $300–500), and an acquisition fee at signing all add to the true cost. If you drive a lot or are hard on cars, those fees can erase a lease's monthly-payment advantage.
A shorter term that stays entirely within the warranty period but concentrates depreciation into fewer months.
Monthly lease payment
$490
That breaks into $344 of depreciation (the value the car loses while you drive it), $118 of finance charge, and $28 of tax. Over the 24-month lease you'd pay $13,753 in total including your $2,000 down — an effective $573 a month.
The "money factor" is just interest in disguise — multiply it by 2,400 to get the equivalent APR, here 5.28%. Always convert it so you can judge whether the lease financing is competitive. A money factor above roughly 0.0030 (≈7.2% APR) is worth questioning, and like any rate it's better with strong credit.
Leases cap your annual mileage — typically 10,000–15,000 miles — and charge $0.15–0.30 per mile over. Excess wear, a disposition fee at turn-in (often $300–500), and an acquisition fee at signing all add to the true cost. If you drive a lot or are hard on cars, those fees can erase a lease's monthly-payment advantage.
A lease payment has three parts. Depreciation is the biggest: it's the car's value you use up while driving it — the negotiated price minus the residual value, spread over the lease term. The finance charge is interest on the money the leasing company has tied up, calculated from the money factor. Sales tax is then applied, in most states, to the monthly payment.
Because you only pay for the depreciation plus interest — not the whole car — lease payments are lower than loan payments on the same vehicle. But you own nothing at the end. Understanding the breakdown lets you see exactly where your money goes and which numbers are negotiable.
The money factor is the lease's interest rate in disguise. Multiply it by 2,400 to get the equivalent APR — a 0.0025 money factor is about 6% APR. Dealers sometimes quote it hoping you won't convert it, so always do. Like a loan rate, it depends on your credit and can sometimes be negotiated.
The residual value — the car's projected worth at lease end — is set by the leasing company and largely fixed, but it drives your cost: a higher residual means less depreciation and a lower payment, which is why cars that hold their value lease well. The most negotiable number is the capitalized cost (the negotiated price): lowering it reduces depreciation directly. Focus your negotiation there and on the money factor, not on the monthly payment in isolation.
Dealers can hit a target payment by hiding a higher price or money factor. Negotiate the capitalized cost and money factor directly.
A money factor obscures the interest rate. Multiply by 2,400 to see the real APR and judge whether it's competitive.
A big down payment is lost if the car is totaled early, since insurance pays the leasing company. Keep down payments minimal on a lease.
Choosing a low mileage cap to lower the payment backfires at $0.15–0.30 per mile over. Match the cap to how much you actually drive.
Disposition fees, excess wear and mileage charges can erase the monthly savings. Budget for the true turn-in cost.
A lease payment is depreciation plus a finance charge, plus tax. Depreciation is the negotiated price minus the residual value, divided by the term. The finance charge is the negotiated price plus residual, times the money factor. Tax is usually applied to the monthly payment. Because you only pay for the value used, lease payments are lower than loan payments.
The money factor is the interest rate on a lease, expressed as a small decimal. Multiply it by 2,400 to convert it to an approximate APR — so a 0.0025 money factor is about 6%. Always convert it to judge whether the financing is competitive, since dealers often quote the money factor rather than the APR.
The residual is the car's projected value at the end of the lease, set by the leasing company as a percentage of MSRP. A higher residual means the car depreciates less during your lease, which lowers your payment. It's also the price at which you can buy the car at lease end if you choose.
Leasing offers lower monthly payments and a new car every few years, but you build no equity and face mileage limits and end-of-lease fees. Buying costs more monthly but you own the car and can drive it payment-free once the loan is paid. Over many years, buying and keeping a car is usually cheaper; leasing suits those who value low payments and a new car regularly.
Generally, less is better. A large down payment (cap cost reduction) lowers the payment but is money you lose entirely if the car is totaled early — insurance pays the leasing company, not you. Many advisors suggest putting little or nothing down on a lease and keeping that cash, accepting a slightly higher monthly payment.
Common lease fees include an acquisition fee at signing (often $500–1,000), a disposition fee at turn-in (typically $300–500), excess mileage charges ($0.15–0.30 per mile over the limit), and excess wear-and-tear charges. These can add up, so factor them into the true cost rather than judging a lease on the monthly payment alone.
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