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| How to Calculate Your Auto Lease Payment |
By:
Timothy Spaulding |
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Knowing how to determine your monthly auto lease outlay makes it much easier to decide if leasing a vehicle is the right decision. However, most people feel overwhelmed by the "complicated" calculations on a lease agreement, and choose to let the car lease company to calculate do the lease payments.
In reality, it’s not that hard! Once you have an understanding of all the factors required to determine your monthly charges, the results are easy to determine. These pivotal factors are:
MSRP (which means Manufacturer’s Suggested Retail Price): MSRP is the price the dealer posts on the car or truck. This is also known as the sticker price.
Money Factor: It designates the rate of interest you will pay on the lease. Make sure that the dealer discloses interest rate before signing a lease agreement.
Lease Term: How many months will you be leasing the car or truck.
Residual Value: What the vehicle is estimated to be worth at the lease completion. Likewise, you can obtain this value from your vehicle dealer.
At this time, let us estimate an example payment which is based on leasing an auto with a sticker price, or MSRP, of $30,000 along with a money factor of 0.0049 (this is regularly quoted as 4.9%). We will assume a lease period of 4 years, or 48 months and the anticipated residual value percentage is 45%.
The initial step will be to estimate the residual value of the vehicle. You multiply the vehicle's MSRP by the residual percentage:
$30,000 X .45 = $13,500.
The vehicle will be assessed at $13,500 at the conclusion of the lease, which means you will be using:
$30,000 - $13,500 = $16,500
This value of $16,500 is the value you will have consumed over the 48 month lease span resulting in a monthly outlay of:
$16,500 / 48 = $343.75
This is the first component of the monthly lease payment, known as the monthly depreciation charge.
The second element of the monthly charge, known as the money factor payment, adds the interest cost. It is computed by adding the MSRP amount to the residual valuation and multiplying this by the money factor:
($30,000 + $13,500) * 0.0049 = $213.15
Finally, we make the estimated monthly expense by combining the two components together:
$343.75 + $213.15 = $556.90
To recap, the sample calculation looks like this:
A. Monthly Depreciation Cost:
MSRP X Depreciation Percentage = Residual Assessment
MSRP - Residual Assessment = Depreciation over lease term
Depreciation during lease term / lease term (total of months in the lease) = monthly depreciation charge
B. Monthly money factor cost
(MSRP + Residual value) X Money factor = money factor charge
C. Example Monthly Payment:
depreciation charge + money factor charge = monthly expense
Take into account that this is a simple calculation which does not consider fees, rebates, taxes or any manufacturer or dealer incentives. The assessment provides you with a rough number or an approximation of what the lease outlay for the auto in question would be.
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