How to Calculate Lease Interest & Payments

Calculating a lease's monthly interest and payments takes some homework, but it is always a good idea to fully understand such a significant transaction. A good example would be a car lease, which takes nine steps to calculate. As a part of your homework, you'll need to do some research about the car's value and also the interest rate inherent in the lease payment.

Instructions

1

Determine the car's residual value at the conclusion of your lease (for example at the end of three years). You can look up the value of a three-year old model of the same car on the Kelley Blue Book site.

2

Determine the invoice price of the car--what you would actually pay to purchase it.

3

Subtract the residual value from the invoice price. The result equals the depreciation over three years (36 months).

4

To calculate the monthly depreciation payment, divide the result in Step 3 by 36 months.

5

Next, add the residual value (Step 1) to the invoice price (Step 2).

6

Determine the money factor. This is the interest rate you are being charged divided by 2,400. You could ask the dealer for this figure or call some banks that make car loans to get an approximation.

7

Multiply the result of Step 5 by the money factor. The result is the money factor portion of your monthly payment.

8

Add the money factor (Step 7) and the depreciation payment (Step 4) to calculate your monthly lease payment before taxes.

9

To add the taxes, multiply your local sales tax rate by the monthly lease payment (Step 8). Add this result to Step 8 for your total monthly payment.