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Calculating Lease

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Calculate a Fair Rate Before Leasing a Car!

Car leases usually last 36 months (3 years), and your payments are equally divided, but the total cost may include hidden fees for things like excess mileage, depreciation, residual value, gap insurance, and other items. It's easy to get confused about what you are getting. Although a monthly fee of $599/month for your dream car may sound exciting, as with any major purchase, do your homework first. Compare your options, do some research, and invest the time and resources you need before leasing. GoodCar's FREE lease calculator gives you the power to negotiate a much better deal for yourself.

Depending on market conditions and other business considerations, if you visit a dealership armed with our data, the dealer might give you an even better deal or at least a fair lease rate. Regardless, you will have all the information you need to negotiate an auto lease fairly.

The Costs of Leasing a Car

When you lease an automobile, a fast-talking salesperson will gloss over the details and focus on an affordable monthly car payment. Unfortunately, buried within that lease payment are hidden fees and costs that they won't tell you about. Knowing what goes into a car lease calculation will help you negotiate a better price. Understand that every number in the formula matters: your credit rating, interest rate, and down payment, all factor into the lease. Don't forget about the sales tax rate and excise tax along with end-of-lease costs. You may also have to pay gap insurance and excess mileage fees.

Below is the car lease formula that dealers use to calculate your price. The car lease formula is built around three major components:


Cost of the car: Car prices vary widely depending on original and optional equipment, trim levels, and where you plan to buy the car. Even the original manufacturing plant where the vehicle was assembled factors in. Sometimes manufacturers will offer rebates or incentive programs for a specific model, which also gets calculated into the mix. Since the price of the car will drive your payment amount, you should focus on negotiating with the dealer to get the MSRP (manufacturer's suggested retail price) of the vehicle down before calculating any lease payments.

Lease terms: The terms of the lease may include the duration (typically 36 months/3 years), the lending/interest rate, and the residual value at the end of the lease (what the car will be worth after you drive it for the entire lease term). Unless you know precisely what the typical value will be for that vehicle, you may be compromising when you don't need to. This is where some research can give you an advantage when negotiating a lease deal or auto loan.


Your credit score: Your credit rating can dramatically affect the interest rate you pay when leasing a car. You may see this noted on the lease as a "money factor." The money factor directly relates to your interest rate. For example, you might see a money factor of 0.0022 or a money factor of 0.0029. Although they may seem similar, respectively, they correspond to a lending rate of 5.28% versus 6.96%, which can drastically affect your monthly payment.

Car Leasing Pros and Cons

When considering whether or not to lease a car, you also need to factor in some other considerations. For example, some lease deals come with perks, such as free maintenance or servicing during the lease term. This is a big advantage and could save you hundreds and even thousands of dollars on regular maintenance or repairs.

Some other advantages to leasing a car include:

  • Monthly payments may be lower, especially on high-end vehicles.
  • The car is usually risk-free because it's a new car and may not require any repairs during the lease term.
  • The vehicle will be covered by the manufacturer's warranty.
  • May include free oil changes and inspections.
  • You can drive a more expensive vehicle affordably.
  • The vehicle may have the latest safety features.
  • You don't have to worry about trade-in value or selling it at the end of the lease; you simply drop it off at the dealership.
  • Tax advantages for business owners.

Along with some pros, there are also disadvantages to leasing a car. These include:

  • You absorb most of the depreciation on the vehicle during the first few years.
  • Often, the lease costs as much as a car loan, and in the end, you have nothing to sell.
  • If you lease cars year after year, you never build up equity in a vehicle.
  • If you go over the allotted mileage, you may have to pay a steep fee (10-50 cents per mile) over the allowed number of miles.
  • If you need to terminate the lease, you might have to pay an early termination fee.
  • Leases often require a hefty down payment.
  • You may still have to pay for new tires, brakes, and other maintenance items during the lease term.
  • Watch out for end-of-lease fees.

Buy or Lease?

The decision to buy a vehicle or lease one is personal. You must consider all the pertinent factors and make the best decision for you. When thinking about buying versus leasing, keep in mind:

Market fluctuations: If the vehicle's value goes up, owning a car may be a better option because you can sell it and make a profit. Alternatively, if the value goes down and you are leasing it, you won't lose any money when you hand it in.

Technical maintenance/service: Typically, due to average wear and tear, vehicles need repairs and more significant maintenance over time. If you buy, those maintenance expenses will be all yours.

Lease term: Be careful when deciding on the lease term. The longer the term, the more you will pay in interest. If the lease term goes beyond the warranty of the vehicle, you could end up paying for maintenance costs before the end of the lease.

Your equity: Whenever you buy something as you pay down the loan, you build equity. When you purchase a car rather than lease it, you have something of value after it's paid off and can keep it or sell it.

Frequently Asked Questions About Car Lease

When thinking about a new lease payment, there are many factors to consider. It can be confusing and difficult to calculate yourself. Use GoodCar's free auto loan calculator to get a quick, accurate picture of where you stand before visiting the dealership.

Using GoodCar's powerful car lease calculator, you can see how much a potential lease would cost you within minutes and whether you can afford it. It can also give you other information to broker a better deal.

There are advantages and disadvantages to both buying and leasing. You need to determine which route fits your situation best. Calculating the cost of a lease beforehand may help you make up your mind.

A car lease money factor is the financing charge you will pay with your lease. It may also be called an annual percentage rate (APR). It is typically noted as a decimal on the lease loan documents. Lenders base your money factor on your credit rating.

Lease rates are based on your credit score. Depending on current bank rates, if you have excellent credit, you may see a rate between 2% and 5%, average credit may net you an interest rate between 6-9%, and for poor credit, you may have to pay a finance rate of 10-15%.