A typical 36-month lease
A $30,000 car with an $18,000 residual value, a $2,000 down payment, a 0.00125 money factor, 8% tax and a 36-month term costs $362.10 a month.
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This is an estimate for information only. Actual lease terms, fees and taxes depend on the leasing company and your location.
Result
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How it works
The depreciation fee spreads the difference between the capitalized cost (price minus any down payment) and the residual value evenly across the lease term. The finance fee is calculated on the sum of the capitalized cost and residual value, multiplied by the money factor — a small decimal that plays the same role as an interest rate.
Multiplying the money factor by 2,400 converts it into an approximate annual percentage rate, making it easy to compare a lease offer against a loan's APR.
Formulas used
Depreciation fee
Depreciation = (Cap cost − Residual) ÷ Term
Finance fee
Finance = (Cap cost + Residual) × Money factor
Worked examples
Converting the money factor to an APR
A money factor of 0.00125 is equivalent to an annual rate of exactly 3%.
Assumptions and limits
- Sales tax is applied to the full monthly payment, matching how many jurisdictions tax a lease.
- No acquisition, disposition or excess-mileage fees are included.
- The money factor and residual value are as quoted by the leasing company.
Frequently asked questions
What is a residual value?
The car's estimated worth at the end of the lease, set by the leasing company up front — a higher residual value means a lower monthly payment, since less depreciation is being paid for.
Why does a down payment matter on a lease the way it does on a loan?
A down payment (called a "cap cost reduction" in leasing) lowers the capitalized cost, which lowers both the depreciation fee and the finance fee — but if the car is a total loss early in the lease, that money is usually not recoverable.
How do I compare a money factor to a loan rate?
Multiply the money factor by 2,400 — the result approximates the annual percentage rate, which can be compared directly to a loan APR.
Does a lease ever build equity like a loan does?
No — the depreciation fee pays for the car's expected loss in value, not toward ownership; at the end of the term the car is returned unless the lease includes a purchase option.
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