Auto Lease Calculator

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]


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

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 an Auto Lease?

One needs to follow the below steps in order to calculate the periodical lease amounts.

  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.

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

  3. Now, we need to calculate deprecationCalculate DeprecationThe Depreciation Expense Formula computes how much of the asset's value can be deducted as an expense on the income statement. Formula for Straight-line depreciation method= Cost of an asset - Residual value/useful life of an asset.read more, which can be calculated by dividing the value arrived in step 2 by a term of the lease, which shall be a periodical deprecation charge.

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

  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.

  6. Take the total of values arrived in step 5 and step 3, which shall be total periodical outflow via lease paymentLease PaymentLease payments are the payments where the lessee under the lease agreement has to pay monthly fixed rental for using the asset to the lessor. The ownership of such an asset is generally taken back by the owner after the lease term expiration.read more.

Auto Lease Calculator Examples

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 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 an agreed-upon price of $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.

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

Note: These shall be calculated in two parts per 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

  • 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

= 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).png

= (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 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 the 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]

Note: These shall be calculated in two parts per 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

  • 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

= 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)

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 lesseeLesseeA Lessee, also called a Tenant, is an individual (or entity) who rents the land or property (generally immovable) from a lessor (property owner) under a legal lease agreement. read more 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.

Recommended Articles

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.