The standard lease formula: depreciation fee + rent charge + tax
Every conventional car lease payment is three numbers added together. Depreciation fee = (adjusted cap cost − residual) / months. Rent charge = (adjusted cap cost + residual) x money factor. Then sales tax where your state applies it monthly. Example: $45,000 car, $43,000 negotiated cap cost, 60% residual ($27,000), 36 months, money factor 0.0025 (= 6% APR): $444.44 depreciation + $175.00 rent = $619.44 pre-tax, $669.00 with 8% tax. The levers to negotiate are cap cost and money factor; the residual is set by the lender. Average new-car lease payments have run $619–$659 a month across 2025 (Experian automotive finance data), roughly $80–$140 below the average new-car loan payment.
| Term | What it is | Typical range | Negotiable? |
|---|---|---|---|
| MSRP | Sticker price; residual is set against it | — | No |
| Adjusted cap cost | Negotiated price + fees − cap reductions | MSRP minus discounts | Yes — the main lever |
| Residual value | Predicted value at lease end, % of MSRP | ~50-65% at 36 mo | No (set by lender) |
| Money factor | Interest rate / 2400 | 0.00075-0.0035+ (1.8-8.4% APR) | Sometimes (dealers can mark it up) |
| Acquisition fee | Lender's charge for setting up the lease | $495-$1,095 ($995 common) | Rarely |
| Disposition fee | Charged at turn-in if you don't buy or re-lease | $300-$500 | Waived if you re-lease same brand |
| Mileage allowance | Miles/year in the contract | 10k / 12k / 15k per year | Yes (buy more upfront, cheaper) |
| Excess mileage | Per-mile charge at turn-in | $0.15-$0.35/mi | Negotiated into contract |
Drive 45,000 miles over a 36-month/12k lease (36,000 allowed) and the 9,000 excess miles cost $2,250 at $0.25 each. Prepaid miles run roughly half that, so pick the allowance honestly.
| Money Factor | APR Equivalent | Monthly Rent Charge Here* | Verdict |
|---|---|---|---|
| 0.00075 | 1.8% | $52.50 | Subvented promo (rare, brand-subsidized) |
| 0.00150 | 3.6% | $105.00 | Excellent |
| 0.00200 | 4.8% | $140.00 | Good |
| 0.00250 | 6.0% | $175.00 | Fair / typical buy rate |
| 0.00300 | 7.2% | $210.00 | High — likely marked up |
| 0.00350 | 8.4% | $245.00 | Poor — walk or renegotiate |
*On our example deal ($43,000 cap cost + $27,000 residual). The rent charge column shows why the money factor deserves attention: the spread between 0.0015 and 0.0035 is $140 a month, or $5,040 over the lease.
A lease pays for two things: the car's expected depreciation, and rent on the money tied up in it. Lenders package that as two fees that sum to your pretax payment. Knowing the formula turns an opaque "sign and drive" quote into something you can check line by line.
Depreciation fee = (adjusted cap cost − residual) / term months. Rent charge = (adjusted cap cost + residual) x money factor. Monthly payment = (depreciation fee + rent charge) x (1 + tax rate) in states that tax the payment. Total cost = down payment + acquisition fee + all monthly payments. The money factor converts to APR by multiplying by 2400.
Enter MSRP and your negotiated price (yes, you negotiate the price on a lease exactly like a purchase). The residual percentage comes from the lender's lease sheet; 55-62% is the usual 36-month band. Enter the money factor you were quoted, and check the auto-computed APR — anything above roughly 7% deserves a challenge. The tax field applies to monthly payments, which is how most states handle it; a few (like Texas) tax the full price upfront, which this calculator approximates as a monthly rate.
A $45,000 SUV with a 60% residual over 36 months. You negotiate $43,000, put nothing down, at a 0.0025 money factor with 8% sales tax. Residual = 45,000 x 0.60 = $27,000. Depreciation fee = (43,000 − 27,000) / 36 = $444.44. Rent charge = (43,000 + 27,000) x 0.0025 = $175.00. Pretax payment = $619.44; with tax, $619.44 x 1.08 = $669.00 a month.
Total cost of the deal: 36 x 669.00 = $24,084 in payments, plus the $995 acquisition fee, so about $25,079 for three years of the car. That's the honest comparison number against buying — not the advertised monthly.
Two ways the same car gets cheaper. A 65% residual instead of 60% raises the residual to $29,250, cutting the depreciation fee to $381.94 — the payment falls to $562.57 pre-tax even though the rent charge ticks up to $180.63. And negotiating the cap cost to $41,500 cuts depreciation to $402.78 and the payment to $574.03 pre-tax. Neither touches the money factor — which is why the best lease deals are usually a combination of manufacturer subvention (low MF or boosted residual) and your own price negotiation.
Watch the due-at-signing too. A "cap reduction" down payment of $2,500 would drop this payment to $587.25 including tax, but the total cost only falls from $25,079 to $24,636 — $443, which is just the interest that $2,500 wasn't accruing. The other $2,057 of "savings" is your own cash prepaid back to you, and it's gone if the car is stolen or totaled in month 3. Monthly outlay lower, deal barely better. If a number in your contract doesn't match this math, ask the dealer to walk you through their version — some states and lenders calculate tax differently, but the three-part structure won't change.
Three parts. Depreciation fee = (adjusted cap cost − residual value) / months. Rent charge = (adjusted cap cost + residual) x money factor. Monthly payment = depreciation + rent charge, plus sales tax where your state taxes the monthly payment. A $45,000 car leased at a $43,000 cap cost with a 60% residual over 36 months at a 0.0025 money factor: $444.44 + $175.00 = $619.44 pre-tax, $669.00 with 8% tax.
The money factor is the lease's interest rate in disguise, written as a small decimal like 0.0025. Multiply by 2400 to get the equivalent APR: 0.0025 x 2400 = 6.0%. Subvented manufacturer leases run under 0.00175 (about 4.2% or less); anything above roughly 0.0030 (7.2%) means the dealer marked it up, because lenders allow dealers to bump the buy rate for extra profit.
The residual is the car's projected value at lease end, set by the lender as a percentage of MSRP. It's the single biggest lever on your payment: on a $45,000 car, the difference between a 55% and 65% residual is $4,500 of depreciation you don't pay. Residuals vary by term (36-month leases typically land around 55-62% of MSRP; 24-month leases run higher) and by brand — vehicles that hold value lease cheaper.
Usually yes. A down payment (cap cost reduction) only pre-pays depreciation, lowering the monthly number but not the total. It also puts cash at risk: if the car is totaled or stolen in month 3, gap insurance covers the lease payoff, but your $3,000 down is gone. Putting $2,500 down on our example drops the payment from $669 to $587.25 with 8% tax, but total cost only falls $443 — the rest is your own cash handed back to you monthly, and you may never see it again.
Typically first month's payment, the acquisition fee (about $995 at most captive lenders), DMV/registration, and any cap reduction. On our $669/month example with no down payment, expect roughly $1,900 to $2,200 at signing including the first payment and acquisition fee. Advertised "$199/month due at signing $2,999" deals bundle the down payment into the drive-off instead.
A quick filter: a good lease payment is at or under 1% of the car's MSRP. On a $45,000 vehicle that's $450/month with nothing significant down. Our example at $619 pre-tax fails the rule, which tells you the deal depends on the money factor and residual, not luck. The rule ignores term length and drive-off, so treat it as a screen, not a verdict.