Auto Lease Calculator
An auto lease calculator can be used to find the periodical cash outflow in the form of a lease. Lease includes depreciation as charge, interest payment as charge and sometimes there could be sales tax but we shall ignore here as taxes vary across the region.
Auto Lease
[(C – R) / L + (C + R) x M]
- 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
The formula for calculating Auto Lease as per below:
Wherein,
- C is the capitalized cost
- R is the residual value at end of 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 an Auto Lease?
One needs to follow the below steps in order to calculate the periodical lease amounts.
Step #1 – First, determine the capitalized value of the vehicle which can be calculated as agreed upon value of the vehicle less any down payment made less any trade-in value.
Step #2 – Subtract a residual value from value arrived in step 1.
Step #3 – Now, we need to calculate deprecation which can be calculated by dividing value arrived in step 2 by a term of lease which shall be periodical deprecation charge.
Step #4 – Convert the APR, which is expressed in percentage into money factor by dividing it by 2400.
Step #5 – Sum up the value arrive in step 1 with residual value and now multiply the result by a money factor that was calculated in step 4 and the result would be periodical interest charge.
Step #6 – Take the total of values arrived in step 5 and step 3, which shall be total periodical outflow via lease payment.
Auto Lease Calculator Examples
Example #1
Mr. Amitabh wants to buy a car that costs around $45,000 but since it’s out of his budget he decides either to take it on loan or lease out since he just wants to drive the car for a couple of years. He tries for a loan but due to a lower credit score, he is denied for the loan. Later on, he meets a friend who tells him that he can take it on lease and promises him to help in getting a lease.
On inquiry, the car could be leasable for 3 years with agreed-upon price as $43,000 after negotiating with the dealer. The residual value on 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 are required to calculate monthly lease payments to be made by Mr. Amitabh.
Solution:
We can use the below formula to calculate the monthly lease payment.
- 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.
Capitalized value (C) = $43,000 – $3,000 – $0
= $40,000
- Second would be to calculate the Depreciation charge
Depreciation Charge = (C – R) / L
= ($40,000 – $10,500) / 36
= 29,500 / 36
= 819.44
- Next would be to calculate interest.
Money factor can be calculated as APR / 2400 which is 5% / 2400 which is equal to 0.0021
Interest Charges = (C + R) x M
= (40,000 + 10,500) x 0.0021
= 105.21
- 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
Example #2
Suppose that a car can be leased for a period of 2 years and where the agreed-upon value is $22,000 where lessee would be required to make a down payment of $3,000 and lessee is trading in his old car for the value of $1,000. The residual value is agreed upon is $3,500. The APR for this lease is 6%. Based on the given information you are required to calculate monthly lease payments.
Solution:
We can use the below formula to calculate the monthly lease payment.
Monthly lease payment = [(C–R)/L+(C+R)*M]
- 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.
Capitalized value (C) = $22,000 – $3,000 – $1,000
=$18,000
- Second would be to calculate the Depreciation charge
Depreciation Charge = (C – R) / L
= ($18,000 – $3,500) / 24
= 14,500 / 24
= 604.17
- Next would be to calculate interest.
Money factor can be calculated as APR / 2400 which is 6% / 2400 which is equal to 0.0025
Interest Charges = (C + R) x M
= (18,000 + 3,500) x 0.0025
= 53.75
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
Conclusion
Auto Leases can be used to calculate monthly lease payment which includes depreciation charges and interest charges. However, there would be certain restrictions and limitations placed on the lessee on the use of vehicles like speed limitations, 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.
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This has been a guide to Auto Lease Calculator. Here we learn how to calculate periodical cash outflow in the form of a lease using an auto lease calculator along with some examples. You may also have a look at the following articles.
