Learning whether or not you can make an accurate decision on the affordability of the vehicle of interest you must calculate your monthly lease payments. Most people don’t like the math and wait for the dealer to calculate your lease payments however this may not be the wisest idea. Figuring out the math can be difficult to the eye however it is not that difficult once you have figured it out. With a little time and ingenuity even you can complete it!

Once you have figured out what goes into the formula everything else is simple here are a few key figures to your formula:

The Money Factor: You should know this key factor and before signing any lease you may have to insist to the dealer they disclose this figure.

The MSRP: For short the longer more complex name–Manufacturer’s Suggested Retail Price: This Price is what the price is listed for this particular type of vehicle. It is often the price in the window.

Lease Term: This is quite simply the number of months the lease will be continued. Which can vary from 24-36 weeks?

Residual Value: The Residual value is what the vehicle will be worth at the end of your term or lease. Many times you have to request this type of information from the dealer. It is generally not offered up as community information if you know what I mean.

Calculating the Lease Payment:

Calculating a lease payment is simple with all the key components. Follow the sample for yourself and see how you can do this:

Sample:

MSRP=25,000 (or sticker price)

Money factor is: 0.0034 they will usually write it like this 3.4%

The lease is contracted for over 3 years.

Residual Percentage is: 55%

The first thing you will need to do is calculate how much the residual value will be on the car when you lease is up. When doing this you have to multiply the MSRP by the percentage they gave you for the residual or 55% in this case.

$20,000X .55 = $11,000

This will show you that your car will be worth $13,750 at the end of your lease so you will be using $11,250 worth of the cars value.

This amount $11, 250 is used over the course of the lease. The 36 months you sign with the dealers. At that rate the monthly payment will be $9.000/36 =$250.00

Now remembering this is only the first part of the equation and it is called the monthly depreciation charge. The next part of determining your monthly payment is called the money factor payment. Which adds in the interest charge? This is calculated by adding the MSRP to the residual value. Or like this:

(20,000+11,000)*0.0034 = $105.4

Then we add the two figures and bingo you have it the final amount is:

$250 + 105.4 = $355.4

If you want to look at the formula you must view it in two parts like this:

1. Monthly Depreciation Charge-

MSRP X Depreciation value or percentage = Residual Value

MSRP-Residual Value-Depreciation from the lease or contract term

The Depreciation for the lease term/lease term (or the number of months in the lease) = Monthly depreciation charge.

2. Monthly factor Charge

(MSRP + Residual Value) X Money Factor= Money Factor Payment

3. Monthly Payment =

Depreciation Charge + Money Factor Payment = Monthly payment

This figure is a base figure and there will be other charges to consider. But it will give you an idea of what they are asking and why. Other fees that could be added to the equations are taxes, rebates, or other incentives that the dealer has. It will show you a rough estimate of the overall view of the payments and why they are that way. It will also give you a different view point on how you look at the dealers you choose and what market price you should search for.

Darren Williger is an over-caffeinated, non-smoking, car buying, low carbohydrate eating, winemaking enthusiast who writes for Cargoyle.com, MotorMaven.com, and MixtureCars.com.

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