Auto Lease Calculator

Updated on April 24, 2024
Article byHarsh Katara
Reviewed byDheeraj Vaidya, CFA, FRM

Auto Lease Calculator

An auto lease calculator can be used to find the periodical cash outflow in the form of a lease. Popular auto lease calculators include depreciation as a charge, interest payment as a charge, and sometimes there could be sales tax, but we shall ignore it here as taxes vary across the region.

What Is An Auto Lease Calculator

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For eg:
Source: Auto Lease Calculator (wallstreetmojo.com)

Auto Leases can calculate monthly lease payments, including depreciation and interest charges. However, there would be certain restrictions and limitations placed on the lessee on the use of vehicles like speed limitations and kilometer driving limitations, which shall not be the case in a loan or when the vehicle is purchased in cash as the borrower himself is the owner which is not in case of a lease.

Auto Lease

[(C – R) / L + (C + R) x M]


Wherein,
  • C is the capitalized cost
  • R is the residual value at end of lease term
  • L is the term of lease period
  • M is the money factor which can be calculated as APR / 2400
Capitalized Cost
$
Residual Value
$
Term of lease period
Money factor which can be calculated as APR / 2400

Auto Lease Calculator Explained

Auto lease calculators are invaluable tools designed to assist both lessors and lessees in estimating and understanding the financial aspects of an auto lease agreement. These online calculators take into consideration key factors such as the vehicle’s purchase price, lease term, interest rates, and the anticipated residual value at the end of the lease.

For Lessors, online or Excel auto lease calculators serve several purposes. They allow lessors to estimate the overall cost of leasing a vehicle, including interest charges, lease duration, and any additional fees. This enables lessors to develop competitive and attractive lease terms, contributing to a more appealing offering for potential lessees. Additionally, these calculators help lessors assess the financial risk associated with different leasing scenarios, aiding in decision-making related to pricing and lease conditions.

For Lessees, auto lease calculators are crucial for budgeting and decision-making. Lessees can use these tools to determine if the lease payments align with their financial capacity, considering factors like down payments and monthly obligations. The calculators also serve as a comparison tool, enabling lessees to evaluate and compare the costs of leasing different vehicles or under varying lease terms, empowering them to make well-informed choices.

The significance of auto lease calculators in the industry lies in their ability to bring transparency and efficiency to the leasing process. By providing clear insights into the financial implications of lease terms, these calculators contribute to a more straightforward and informed decision-making process for both lessors and lessees, ultimately enhancing customer satisfaction and facilitating smoother transactions in the auto leasing market.

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Formula

Let us understand the formula that shall act as a basis for us understanding popular auto lease calculators.

The formula for calculating Auto Lease as per below:

Monthly lease payment = [(C–R)/L+(C+R)*M]

Wherein,

  • C is the capitalized cost
  • R is the residual value at the end of the lease term
  • L is the term of the lease period
  • M is the money factor, which can be calculated as APR/2400

How to Calculate?

One can follow the step-by-step process mentioned below to calculate an auto lease. While the tax rates might differ for every jurisdiction, this process can be majorly followed.

  1. First, determine the capitalized value of the vehicle, which can be calculated as the agreed-upon value of the vehicle less any down payment made less any trade-in value.

  2. Subtract a residual value from the value arrived in step 1.

  3. Now, we need to calculate deprecation, which can be calculated by dividing the value arrived in step 2 by the lease term, which shall be a periodical deprecation charge.

  4. Convert the APR, expressed in percentage, into a money factor by dividing it by 2400.

  5. Sum up the value arrived in step 1 with residual value and multiply the result by a money factor calculated in step 4. The result would be a periodical interest charge.

  6. Take the total of values arrived in steps five and 3, which shall be the total periodical outflow via lease payment.

Examples

Now that we understand the intricacies of popular auto lease calculators, let us apply that knowledge to practical application through the examples below.

You can download this Auto Lease Calculator Excel Template here – Auto Lease Calculator Excel Template

Example #1

Mr. Amitabh wants to buy a car that costs around $45,000, but since it’s out of his budget, he decides to take it on loan or lease it out since he wants to drive the car for a couple of years. He tries for a loan, but he is denied the loan due to a lower credit score. Later, he meets a friend who tells him that he can take it on lease and promises to help in getting a lease.

On inquiry, the car could be leasable for three years with an agreed-upon price of $43,000 after negotiating with the dealer. The residual value of the agreement was $10,500. Mr. Amitabh has to make a down payment of $3,000. There is no trade-in value. The APR rate is 5%.

Based on the given information, you must calculate the monthly lease payments to be made by Mr. Amitabh.

Solution:

We can use the below formula to calculate the monthly lease payment.

Monthly lease payment = [(C–R)/L+(C+R)xM]

Note: These shall be calculated in two parts below.

  • First, we shall calculate the capitalized value for the lease, which is nothing but Agreed Value less any down payment less any trade-in value.
Auto Lease Calculator Example 1

Capitalized value (C) = $43,000 – $3,000 – $0

= $40,000

  • The second would be to calculate the Depreciation charge.

Depreciation Charge = (C – R) / L

Auto Lease Calculator Example 1 (Depreciation Charges)

= ($40,000 – $10,500) / 36

= 29,500 / 36

Hence, 819.44

  • Next would be to calculate interest.

The money factor can be calculated as APR / 2400, which is 5% / 2400 which is equal to 0.0021

Interest Charges = (C + R) x M

Auto Lease Calculator Example 1 (Interest Charges)

= (40,000 + 10,500) x 0.0021

= 105.21

  • The total monthly lease payment shall be the sum of depreciation charge and interest charge, which is 819.44 + 105.21, which is equal to 924.65
Auto Lease Calculator Example 1 (Total Lease Monthy Payments)

Example #2

Suppose that a car can be leased for two years and where the agreed-upon value is $22,000, where the lessee would be required to make a down payment of $3,000, and the lessee is trading in his old car for the value of $1,000. The residual value agreed upon is $3,500. The APR for this lease is 6%. You are required to calculate monthly lease payments based on the given information.

Solution:

We can use the below formula to calculate the monthly lease payment.

Monthly lease payment = [(C–R)/L+(C+R)*M]

Note: These shall be calculated in two parts below.
  • First, we shall calculate the capitalized value for the lease, which is nothing but Agreed Value less any down payment less any trade-in value.
Example 2 (Capitalized Value)

Capitalized value (C) = $22,000 – $3,000 – $1,000

=$18,000

  • The second would be to calculate the Depreciation charge.

Depreciation Charge = (C – R) / L

Example 2 (Depreciation Charges)

= ($18,000 – $3,500) / 24

= 14,500 / 24

Hence, 604.17

  • Next would be to calculate interest.

The money factor can be calculated as APR / 2400, which is 6% / 2400 which is equal to 0.0025

Interest Charges = (C + R) x M

Example 2 (Interest Charges)

= (18,000 + 3,500) x 0.0025

= 53.75

The total monthly lease payment shall be the sum of depreciation charge and interest charge, which is 604.17 + 53.75, which is equal to 657.92

Example 2 (Total Lease Monthly Payments)

Reverse Auto Lease

Reverse auto leasing is a flexible solution benefiting both parties involved, allowing the original lessee to exit a lease prematurely and providing an opportunity for a new lessee to acquire a vehicle under existing lease terms. Let us understand this concept to understand the intricacies Excel auto lease calculators as well.

  • Reverse auto lease, also known as lease assumption or lease takeover, occurs when a lessee transfers their existing lease agreement to another individual.
  • The process begins with the current lessee finding a willing party to assume the remainder of the lease term and take over the lease payments.
  • Once an agreement is reached, the lessor typically assesses the creditworthiness of the new lessee and approves the lease transfer.
  • The new lessee assumes responsibility for the remaining lease payments, vehicle maintenance, and any end-of-lease fees or conditions.
  • Allows the original lessee to exit the lease early without incurring penalties, making it advantageous in situations where the lessee’s circumstances change.
  • Provides an opportunity for the new lessee to acquire a leased vehicle without the initial down payment and potentially with a shorter lease term.

Auto Lease Calculator Vs Purchase Calculator

Let us understand the distinctions between popular auto lease calculators and purchase calculators through the comparison below.

Auto Lease Calculator

  • It is explicitly designed for individuals considering leasing a vehicle.
  • Factors in lease-specific information such as the vehicle’s purchase price, lease term, interest rates, residual value, and potential additional fees.
  • Provides estimates for monthly lease payments and total lease costs and may highlight critical terms like the money factor.
  • Helps lessees assess the financial implications of leasing a particular vehicle, aiding in budgeting and decision-making.
  • Allows users to compare different lease scenarios based on varying parameters and terms.

Purchase Calculator

  • Geared towards individuals contemplating the outright purchase of a vehicle.
  • Considers purchase-specific details such as the vehicle’s price, down payment, loan term, interest rate, and potential trade-in value.
  • Offers estimates for monthly loan payments, total purchase costs, and the overall interest paid over the loan term.
  • Assists buyers in evaluating the financial aspects of purchasing a vehicle, facilitating budgeting and informed decision-making.
  • It enables users to compare the costs and financing terms associated with buying a vehicle outright versus leasing.

Recommended Articles

This has been a guide to Auto Lease Calculator. Here we explain its formula, how to calculate, examples, and compare it with purchase calculators. You may also have a look at the following articles –