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How Are Car Lease Prices Calculated OR

How Are Car Lease Prices Calculated

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The price of a car lease is one of the most complicated sales calculators out there because the price is dependent on more factors than can be quantified.

Lease

The residual is a value decided by the bank or leasing company. It’s just an prediction, and the vehicle’s actual value at the end of your lease will probably be either higher or lower than the residual. Banks estimate residual based on the vehicle you are leasing, the term length, and mileage. For example, a vehicle that’s driven 15,000 miles per year for 3 years (total 45,000 miles), will be worth less than the same vehicle if it’s driven only 10,000 miles per year (total 30,000 miles). Imagine that you want to lease a vehicle for 36 months and 12,000 miles per year and the vehicle has an MSRP of \$20,000. The dealership is offering a selling price of \$19,000 (\$1,000 dealer discount) and the manufacturer is offering a \$1,000 incentive. For your specific vehicle, 36-month term length, and mileage restrictions, the bank has set a residual percentage of 61%.

Based on the residual percentage, the bank estimates that your vehicle will be worth \$12,200 (\$20,000 × 0.61) at the end of your lease. This is your residual value. Note that we used the MSRP to calculate the residual value, not the selling price. (Source: www.buerklehonda.com)

Value

Continuing with the same example in Step 1, we already know our capitalized cost and residual value. They are \$18,000 and \$12,200 respectively. The money factor is what indicates how much interest will be charged. It can be expressed as an APR by multiplying the money factor by 2400. For example, a money factor of 0.001 could be seen as a 2.4% APR. In this example, the bank has offered us a money factor of 0.001. Let’s plug this into our formula.

It is important to keep in mind that the Residual Value and Depreciation are determined before you actually lease the vehicle, not after the lease is over. They are both set using historical data of previous versions of the same model as well as forecasting future trends. Other factors that are considered include reliability, the cost and frequency of repairs and parts, fuel economy, size, condition, mileage, consumer trends in desirability, and so on. (Source: www.humberviewgroup.com)