How to Calculate a Lease Payment With Money Factor

Calculating a lease payment with a money factor lets you estimate the monthly lease payment for a vehicle before you visit the dealership. This lets you consider just how well a particular vehicle can fit within your monthly budget. Money factors are used to express the interest rate applied to an automobile lease, and it is equivalent to a interest rate divided by 2400, explains Edmunds.com. For example, an interest rate of 4.99 percent converts to a money factor of .00208. Money factors are used almost exclusively with automotive leases.

Instructions

1

Calculate the residual of the vehicle that you plan to lease. Residual value is calculated by multiplying the vehicle's Manufacturer's Suggested Retail Price (MSRP) by the residual value percentage. For example, if a vehicle has an MSRP of $20,000 and a 50 percent residual value, the residual value of the car is $10,000 at lease end. Edmunds.com recommends that you call the bank or auto dealership to obtain the residual value.

2

Calculate the total depreciation. This figure is calculated by subtracting the residual value from the negotiated selling price of the car. For example, if you negotiate a selling price of $19,000 and the residual value is $10,000, the total depreciation during the lease term is $9,000.

3

Divide the depreciation by the lease term to calculate monthly depreciation. If this is a 36-month lease, divide $9,000 by 36, giving a monthly depreciation figure of $250.

4

Calculate the monthly interest using the money factor. Add the negotiated price of the vehicle ($19,000) to the residual value ($10,000) for a total of $29,000. Multiply this total by the money factor, which is .00208 in this instance. The resultant monthly interest is $60.32.

5

Add the monthly depreciation and monthly interest together. In this example, the total is $310.32.

6

Calculate the monthly sales tax. Just like depreciation and finance charges, the tax on an auto lease is calculated on a monthly basis. Multiply your monthly base payment of $310.32 by your local tax rate to obtain the total monthly payment. For example, if the local tax rate is 7 percent, multiply the payment of $310.32 by 107 percent to include tax in the figure. The total resulting payment is $332.04.