# 6 Factors to Consider when You Calculate a Lease Payment

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November 9, 2016

There are several different factors that are used to calculate a lease payment. It is very difficult to calculate your leasing payments down to the exact penny but you can get it pretty close. It is important to know the type of payment you can afford when you are looking at getting a new car lease.

1. The Lease: Your lease is comprised of monthly payments, a total initial payment, possible charges at the end of the lease, and the length of the lease. What you are actually paying each month is the difference between the estimated worth of the car at the end of the lease and the cars capitalized cost each month. Most people prefer leasing because you can get a new car for a smaller down payment than if you were buying that car outright.
2. Credit Score: Your credit score is a big factor in your lease payments. Advertisements you see with facts and figures for a lease are for those individuals with perfect credit. If you do not have very good credit then you will have higher payments and a larger down payment. If you have bad credit then you may not be able to get a lease at all. When figuring out your payments, get a copy of your credit report.
3. Numbers Needed in the Calculation: In order to calculate your payments, you will need the MSRP price or sticker price of the vehicle, the interest rate or money factor, lease term, and the residual value of the car. Choose the car you are interested in purchasing and get the numbers for the above mentioned figures. You can figure out the money factor by calling a dealer or talking to a credit union. Most people get a 36-month term lease, so determine the residual value at the end of the 36 months. This is normally 50 to 58% of the starting value.
4. The Equations: For the residual value, take the MSRP or sticker price and multiply it by the residual value percentage, which is normally 57%. For the depreciation over 36 months, take the invoice price of the car or net capitalized cost and subtract the residual. For the depreciation payment per month, divide the depreciation by the number of months in the lease (36). The money factor portion is the invoice price, plus the residual times the money factor.
5. Bottom Line Payment: The bottom line payment each month on your car lease is the monthly depreciation payment, plus the money factor payment. You should also factor in some type of tax which is normally your state sales tax. If you find that your monthly payment is too high, you can decrease this value by making a larger down payment. This amount will make the invoice price of the vehicle smaller. This does not take very long to calculate and many online sites have calculators that will do this for you.
6. Buy or Lease: If you like driving a new car every few years, then you will find a lease advantageous. However, if you have a car you really like and plan on driving it for many years without trading in, then purchasing the car outright may be a better choice. Most leases will have the option to purchase the vehicle at the end. Do the math for both situations and see which one fits your circumstances the best.

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