Lease basics: the numbers on a lease quote
A lease quote is a handful of numbers that produce a monthly payment. Knowing what each one is shows where a payment comes from, and lets a lease be compared with buying over the same months.
The numbers on a lease quote
- MSRP: the car's sticker price.
- Selling price (capitalized cost): the price the lease is built on. It is negotiated like a purchase price.
- Residual: the share of MSRP the car is expected to be worth at the end, such as 58%.
- Money factor: the lease's interest rate, written as a small number such as 0.0025. Multiplied by 2,400 it reads as an APR (0.0025 is about 6%), which is how it compares with a loan rate. It can be asked for by name.
- Term: the lease's length in months.
- Due at signing: cash down, lease rebates and trade equity, which lower the capitalized cost.
- Fees rolled in: an acquisition fee and other fees.
- Turn-in fee: a charge at the end, if any.
- Tax: most states charge sales tax on each monthly payment.
How the payment is built
The standard lease payment is depreciation plus a rent charge, then tax on the payment:
- Adjusted capitalized cost = selling price + fees − cash due at signing
- Residual value = MSRP × residual share
- Depreciation per month = (adjusted capitalized cost − residual value) ÷ months
- Rent charge per month = (adjusted capitalized cost + residual value) × money factor
- Monthly payment = (depreciation + rent charge) × (1 + tax rate)
- Total cost = monthly payment × months + cash due at signing + turn-in fee
A worked example
A hypothetical: MSRP $35,000, selling price $33,000, residual 58%, money factor 0.0025 (about 6% APR), 36 months, nothing due at signing, no fees, before tax.
- Residual value: $35,000 × 0.58 = $20,300
- Depreciation: ($33,000 − $20,300) ÷ 36 = $352.78 a month
- Rent charge: ($33,000 + $20,300) × 0.0025 = $133.25 a month
- Payment before tax: $486.03 a month
Comparing a lease with buying
A lease and a loan compare over the same number of months. The lease side is the total paid: payments, cash at signing and the turn-in fee, after which the car is handed back. The buying side is the cash down and the loan payments over those months, less about what the car would be worth then, which is an estimate. A lease also limits miles (often 10,000 to 12,000 a year) and charges for wear.
Common questions
- What is a money factor?
- The interest rate on a lease, written as a small number such as 0.0025. Multiplied by 2,400 it reads as an APR, so 0.0025 is about 6%.
- What is a residual value?
- The share of the MSRP a car is expected to be worth at the end of the lease. The payment pays for the drop from the capitalized cost to the residual, plus interest.
Where this fits
Part of stage 4 of the method: Set the numbers before any dealer speaks. Related: Out-the-door is the only number, Payment is an output.