The Car Leasing Formula: Determine Your Monthly Lease Price

Wondering how you can come up with a fair offer for your lease? Don't want to get scammed? Good. It's best to understand the math before you sign papers. The mistake drivers make most when obtaining a new vehicle might be simply accepting the lease deal as if it's not negotiable. Here's a basic formula to help you figure out what to accept when it comes to leasing.

net capitalized cost - (residual value - sale price) / months in lease term

Net Capitalized Cost

The net capitalized cost is the sum of all the value you provide up front. Usually, it's a down payment plus a trade-in vehicle. Sometimes, drivers get a rebate as part of the deal and they just apply it to the down payment. There could be other value that can be added to the net capitalized cost, as well. All of these values reduce the money you will pay each month. However, don't make a huge down payment when you lease because you might lose that value if the car is damaged badly enough.

Residual Value

The residual value of a vehicle is the remaining value of it. A car that's 10 years old and has 150K miles on it might be worth about 20% of what it originally was worth. With leases, the residual value of the vehicle at the end of the lease term (sometime in the future) is estimated by the dealership. You have every right to object to their estimate and they might reconsider if you ask them to.

You can get a pretty good idea of what the residual value might be by using a calculator such as this one, from CULA. In order to do it, though, you'll need to have the details of your lease figured out. That means check out the dealer's mileage limit and lease term options and find out the MSRP of the specific model and trim you want.

Sale Price

Sale price isn't the MSRP. You can almost always pay less than MSRP to buy a car. You can get an idea of the car's local market price by checking out Edmunds.com or a similar site. You can also try looking for the vehicle's invoice price, which is usually just a little lower than the lowest possible sale price.

Months in the Lease Term

Now you've estimated the residual value and subtracted the sale price and the net capitalized cost from it. The next step is to divide by the number of months in the lease term. This part is pretty straightforward. A standard lease is about 36 months long but you can usually choose another option.

One of the easiest ways to find out which dealer is offering the best discounts is to get free, no-obligation quotes. Click here. It takes just a minute or two to get your free quotes.