Understanding Auto Leases
An auto lease is a popular alternative to buying a vehicle. When you lease a car, you're essentially paying for the right to use it for a specific period, typically 2-4 years. This calculator helps you understand the financial implications of leasing versus buying.
Key Auto Lease Terms
- Vehicle Price: The negotiated price of the vehicle (also called the capitalized cost)
- Residual Value: The estimated value of the vehicle at the end of the lease term
- Lease Term: The length of the lease agreement, typically in months
- Money Factor: Similar to an interest rate, but expressed as a decimal (multiply by 2400 to get the approximate APR)
- Sales Tax: Many states charge tax on lease payments
- Additional Fees: Various fees like acquisition fees, disposition fees, and registration
How Lease Payments Are Calculated
Lease payments consist of two main components:
- Depreciation Fee: (Vehicle Price - Residual Value) ÷ Lease Term in Months
- Finance Fee: (Vehicle Price + Residual Value) × Money Factor
The monthly payment is the sum of these two components, plus any applicable taxes and fees.
Leasing vs. Buying: Pros and Cons
Leasing Advantages
- Lower monthly payments compared to financing a purchase
- Ability to drive a new car every few years
- Typically covered by warranty for most of the lease term
- No long-term commitment or concerns about resale value
Leasing Disadvantages
- Mileage restrictions (typically 10,000-15,000 miles per year)
- Charges for excessive wear and tear
- No equity built in the vehicle
- Early termination can be expensive
Use this calculator to estimate your lease payments and determine if leasing is right for your financial situation and lifestyle.