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Your total monthly lease payment is determined based on three main factors– depreciation, interest (known as the interest or money factor), and taxes. Let’s take a closer look at exactly how these three components are calculated and combined into your payment.
Component #1: DepreciationThis is the largest portion of your monthly payment. It is the value that your vehicle will lose over the length of the lease, calculated as follows:
Monthly Depreciation The capitalized cost is the purchase price you negotiate with the dealer. It is sometimes called the net capitalized cost if the price you negotiated is less than the original asking price. The residual value is the original estimate of how much your car will be worth at the end of the lease term. Component #2: Interest Factor or Money FactorThis is essentially the interest rate you are paying. With a lease, however, it is called the money factor. Interest is expressed as a percentage while money factor is expressed as a decimal point. The calculation is as follows: Monthly Interest Fee = (Capitalized Cost + Residual) x Money Factor If you want to determine the interest rate that corresponds to the money factor, simply multiply the resulting money factor by 2400. Component #3: TaxesTaxes will vary from state to state, province to province, and country to country, depending on whether you are taxed on the entire capitalized cost of the car or just on the depreciation. In most cases, your tax will be calculated monthly as a percentage of the depreciation and interest components, as follows:
Monthly Taxes SummaryYour total monthly lease payment will be determined by adding up all three of these components. Total Monthly Payment = Depreciation + Interest + Taxes *Click a topic to continue*
How A Lease Payment Is Calculated
Take a look at our leasing guide here.
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