How to Calculate a Minimum Lease Payment

When you are looking to lease a car, the minimum lease payment is the least amount of money you would have to pay on the lease each month. Calculating the minimum lease payment (also known as the "bottom-line" lease payment) will allow you to pick the best deal from different financiers. Several factors affect the amount of the lease payment, including the vehicle's sticker price, the negotiated initial price, the vehicle's residual or salvage value, the lease term, the lease factor, the interest rate and the state's sales tax rate. With these pieces of information at hand, you can calculate the minimum lease payment by following a simple procedure.

Instructions

1

Find out the sticker price and determine the residual value. The sticker price, which is also referred to as the MSRP (manufacturer suggested retail price), is the price of the car before negotiations. The residual value is how much you expect the value of the car to be at the end of the lease term. Whereas the sticker price is a fixed and certain amount, the residual value is an estimate. For the following examples, assume the sticker price of the car is $25,000 and its estimated residual value is $13,750.

2

Determine how much of the car's value you will use up or "consume" during the lease term. To do this, deduct the residual value from the negotiated initial price. The negotiated initial price is the price you and your dealer agreed upon. For example, if the negotiated initial price is $22,000 and you expect the car's residual value to be $13,750, the value of the car you will use up during the lease term will be $8,250 (22,000 - 13,750).

3

Determine your monthly payments before interest and tax. To do this, divide the value of the car you will use up by the number of months in the lease term. For example, if the lease term is 36 months and you use up $8,250 of the car's value, your monthly payments before interest and taxes will be approximately $229 (8,250 36).

4

Determine the lease factor, which is a determinant of how much you will have to pay in finance charges during the lease term. To do this, divide the interest rate by 2,400. If the interest rate is 9%, the lease factor will be 0.00375 (9 2400).

5

Determine the amount of interest you will have to pay each month. To do this, multiply the lease factor with the sum of the negotiated initial price and the residual value. For example, if the negotiated initial price is $22,000 and the residual value is $13,750, the sum of the two will be $35,750. Multiply this sum with the lease factor (0.00375). The answer is approximately $134 (35,750 x 0.00375).

6

Add the monthly payment amount before interest and taxes to your monthly interest payment. For example, if the monthly payment amount before interest and taxes is $229 (see step 3) and the monthly interest payment is $134 (see Step 5), the sum of the two will be $363.

7

Add the applicable sales tax to this amount to arrive at your minimum lease payment per month. For example, if your sales tax rate is 7%, your minimum lease payment will be approximately $388 (363 x 1.07).