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How to Calculate a Monthly Car Lease Payment

## How to Calculate a Monthly Car Lease Payment

While it may be simple to calculate a monthly payment on a purchase such as a car, a monthly payment on a monthly car lease may seem complicated. That’s because there are three variables, down payment, interest rate, and length of lease, to take into account.

### Lease

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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). The last thing that we need to add into the payment is tax. Lease taxation varies greatly by state. For this example, we will use Minnesota. In Minnesota, tax is levied on the lease payment. This means that we need to calculate the tax for each lease payment and add it to the payment. Some other states tax on the full cost of the lease and require the tax upfront. Some states even tax on the full selling price of the vehicle, creating a huge tax bill and very expensive leases.Next, we will add all of our drive-off costs and taxes for our total drive-off. Let’s sum up our first lease payment (\$204.94), acquisition fee (\$595), document fee (\$100), registration fee (\$400) and drive-off taxes (\$120.77). If you are making a down payment, don’t forget to include that here. This leaves us with a total drive-off of \$1,420.77. This is the amount due when you sign the lease.

The calculation of lease payment is dependent on three components, which are depreciationDepreciationDepreciation is a systematic allocation method used to account for the costs of any physical or tangible asset throughout its useful life. Its value indicates how much of an asset’s worth has been utilized. Depreciation enables companies to generate revenue from their assets while only charging a fraction of the cost of the asset in use each year. read more fee, finance fee, and sales taxSales TaxThe government levies sales tax on the consumption of various goods and services as the percentage added to the product and services from which the government earns revenue and does the company's welfare. In the United States, 38 different states have different taxes, from Alaska (1.76%) to Tennessee (9.45%).read more. Now, let us have a look at each of the components separately: (Source: www.wallstreetmojo.com)

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