FutureStarr

How to Calculate Auto Lease Price

## How to Calculate Auto Lease Price

In this article I'm going to share how you can use the Horsepower Method to calculate automotive leasing price.

### Price

via GIPHY

A lease is a contract allowing a party to convey property to another party for a specified time, usually in return for a periodic payment. A car lease allows a person to drive a car for a fixed period of time as they make a down payment as well as monthly lease payments until the lease ends. It can help to think of a car lease as a long-term car rental; while car rentals generally last for as little as a day or even just a few hours, car leases average between two and four years. Many leases allow the purchase of the leased vehicles through a purchase option agreement at a specified price once the lease ends. It is important to note that choosing to add such an option at the beginning of a lease will add a small amount to the monthly lease payment. Most car leases can be found at dealerships or private car dealers.Take a car leasable for 3 years and has an agreed-upon value of \$25,000 after negotiations on the auto price (capitalized cost) as an example. The lending financial institution for the lease has placed a residual value of \$12,500 on the car after the 3 years and has given the lessee an APR of 6% after a down payment of \$5,000. Assume that the down payment is solely to reduce the capitalized cost, not as payment for any upfront fees. For simplicity's sake, assume that all fees are rolled into the auto price. The lessee is also willing to trade in a used car with a value of \$2,000, and the transaction occurs in a state with a 6% tax rate.

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