A lease pays for the right to use a car for a set time and number of miles. The leasing company owns it. At the end, you return it or use a purchase option if your contract gives you one.
The monthly payment matters. So does the money needed to get that payment. A small number in big print can have a large bill standing behind it.
Start with three questions:
- What will I pay to start the lease?
- What will I pay during it?
- What could I owe when it ends?
The price has more than one name
MSRP is the manufacturer's suggested retail price on the window sticker. It is a reference price, not a price you must pay. Lease programs often use it to set the residual.
Selling price, also called the agreed-upon vehicle value, is the price you negotiate with the dealer. Ask for it before rebates so you can see the dealer's discount.
Gross capitalized cost, or gross cap cost, starts with that agreed price. It also includes things you pay through the lease, such as a rolled-in acquisition fee, add-ons or an old loan balance. Get each item in dollars.
Capitalized cost reduction lowers that balance. It may come from cash, an eligible rebate or positive trade equity. Those are different sources of money. Your trade equity is your money, even when no cash leaves your pocket today.
Adjusted cap cost is the gross cap cost minus any cap cost reduction. This is the starting balance used in the payment math. A discount already included in the selling price must not be subtracted again as a rebate.
What makes the payment?
Residual value is the value the lessor assigns to the car at the end of the term. A program may quote it as a percentage of an eligible MSRP. Ask for both the percentage and the dollar amount. It is not a promise about the car's future market price.
For a given lender program, vehicle, term and mileage, the residual is often fixed. Negotiate the selling price rather than demanding that a dealer invent a better residual.
Depreciation in the lease calculation is the adjusted cap cost minus the residual. Divide that amount by the number of months to get the monthly depreciation portion.
Money factor, or MF, is the decimal used to calculate the rent charge in many leases. Ask for the actual decimal and whether it includes a dealer markup. The buy rate is the lessor's base money factor for the approved program and credit tier; it is not automatically the rate a shopper receives.
Rent charge is the financing charge for using the lessor's money. In the common calculation used by our lease calculator:
- Monthly depreciation = (adjusted cap cost − residual) ÷ months.
- Monthly rent = (adjusted cap cost + residual) × money factor.
- Base monthly payment = monthly depreciation + monthly rent.
Taxes and any other monthly charges come after that base payment. See the Federal Reserve's explanation of the rent calculation.
The money factor shortcut
Money factor × 2,400 gives a rough percentage you can use to compare quotes. For example, 0.00200 × 2,400 = 4.8%. This percentage may not measure the overall cost of financing this lease.
Shoppers often compare leases this way. It is a shortcut, not a measure of the full lease cost. Fees and payment timing matter. Compare the rent charge in dollars and the total cost too. The Oregon consumer guide explains the shortcut; the Federal Reserve explains why a lease percentage alone can mislead.
Use the money factor tool to try the shortcut with your own decimal. It does not look up your lessor's current buy rate.
Time, miles and fees
Term is how long the lease lasts. A longer term may lower the monthly payment but can mean more total spending and more time outside the warranty.
Mileage allowance is the number of miles included. Use your real driving, including work, trips and the occasional wrong exit. Ask for the total allowance, the starting odometer reading and the charge per extra mile. A low-mile quote is useful only if the miles fit.
Use the mileage planner to estimate your driving before choosing an allowance.
Acquisition fee is a charge for setting up the lease. It may be paid now or added to the cap cost. Ask whether the quoted fee is the lessor's standard fee or includes a markup.
Disposition fee is a return-related fee in some contracts. A dealer's promise to waive it needs written terms from the party responsible for the fee.
Doc fees are dealer paperwork charges. Government fees include title and registration. They are separate categories. State rules differ; a dealer fee does not become a government fee because it sits beside one on a worksheet.
Due at signing is not the same as down payment
Due at signing, or drive-off, can include the first payment, fees, taxes, a security deposit and a cap cost reduction. Ask for an itemized total and how it will be paid: cash, rebates, trade equity or a mix.
“$0 down” may mean no cap cost reduction while still requiring fees and the first payment. “$0 due at signing” means something different. Get the actual dollar total.
A first payment paid at signing is one of the scheduled payments. Do not count it twice when you compare costs. The CFPB's lease disclosure rules distinguish these items.
Sort the signing bill with the due-at-signing itemizer. Keep refundable deposits separate from money spent.
A $38,000 car, step by step
Fictional teaching estimate, not an available lease offer. This is a closed-end lease with 36 monthly payments of $535.26, the first at signing and 35 more monthly. The $1,035.26 due at signing includes that first payment and $500 in upfront fees. It includes 12,000 miles per year, or 36,000 miles total. No security deposit is required. The hypothetical excess-mile charge is $0.25 per mile; excess wear can also cost extra. A $350 disposition fee is assumed if the car is returned. Extra charges may apply at lease end. If you return the car on time and as agreed, you do not owe extra just because it is worth less than the residual.
Taxes here are made-up teaching assumptions, not any state's rules: 6% on the monthly base payment, with no separate upfront tax on fees. Title and registration are also estimates. Real taxes and fees vary by location.
| Input | Fictional amount or choice |
|---|---|
| MSRP | $38,000 |
| Selling price before rebates | $36,000 |
| Term | 36 months |
| Residual | 60% of MSRP |
| Money factor | 0.00200 |
| Acquisition fee, added to cap cost | $695 |
| Doc fee, paid at signing | $300 |
| Title and registration, paid at signing | $200 |
| Cash cap cost reduction | $0 |
| Rebates, trade equity and add-ons | $0 |
| Refundable security deposits | $0 |
1. Find the residual. $38,000 × 60% = $22,800. Use MSRP here, not the negotiated price.
2. Find the gross cap cost. $36,000 selling price + $695 acquisition fee = $36,695. The doc and government fees are paid upfront, so they are not added again.
3. Find the adjusted cap cost. $36,695 − $0 reduction = $36,695. Nothing else is rolled in.
4. Find monthly depreciation. ($36,695 − $22,800) ÷ 36 = $385.972222… That is $385.97 when displayed to cents.
5. Find monthly rent. ($36,695 + $22,800) × 0.00200 = $118.99. The total rent over 36 months is $4,283.64.
6. Add the two parts. $385.972222… + $118.99 = $504.962222… Rounded to cents, the base payment is $504.96. Keep the extra digits until this step.
7. Add the hypothetical monthly tax. $504.96 × 6% = $30.2976, rounded to $30.30. Monthly payment: $504.96 + $30.30 = $535.26.
8. Count the signing money. $535.26 first payment + $300 doc fee + $200 government fees = $1,035.26 due at signing. There is no cash down payment, but there is still a signing bill.
9. Count the term cost once. $1,035.26 + (35 × $535.26) = $19,769.36. Spread across 36 months, that is $549.15 per month as an estimate for comparison.
That term cost matches our calculator when tax on fees is turned off, as assumed here. It excludes insurance, fuel, maintenance, shipping, a purchase option and return charges. Add the assumed $350 disposition fee and the planned return cost becomes $20,119.36, before any excess miles or wear. This broader figure is different from the calculator's term cost.
Open this fictional example in the calculator. The preset keeps tax on fees off and leaves the separate return fee at zero so the term cost above matches.
The residual is not due if you return this closed-end lease as agreed. Buying the car would mean paying the purchase-option amount, plus applicable taxes and fees, instead of simply returning it.
Down payments, security deposits and GAP
A cash down payment reduces the cap cost. It buys a lower payment, but that money is committed upfront. Do not assume you get it back if the car is stolen or totaled.
A security deposit is different: it secures your obligations and is refundable subject to amounts you owe. Some lessors offer multiple security deposits, or MSDs, in exchange for a lower money factor. Availability, deposit size, rate reduction and refund terms vary. Ask for both quotes and keep enough cash for emergencies. The Federal Reserve's negotiating guide explains this distinction.
GAP, or guaranteed asset protection, may cover a qualifying shortfall between the insurance settlement and the lease payoff after a theft or total loss. It may already be included. It is not a replacement for car insurance, and exclusions can leave you owing money. It generally does not repay a cap cost reduction. Read the actual waiver or policy; the Federal Reserve's GAP guide explains the basic risk.
A one-pay lease collects the lease payment upfront under the lessor's own rules. It is not the same as a large down payment on a monthly lease. Get the total-loss refund terms and compare the full cost before tying up that cash.
Before you go back to the dealer, use Check my quote to check the numbers you have and prepare a short list of questions. Missing terms limit what the tool can check.
Take these questions to the dealer
Ask for the selling price, each fee, eligible rebates, adjusted cap cost, residual, money factor, mileage, term, payment with tax and itemized signing total. Also ask about the purchase option, early exit, insurance and return charges.
Tell the dealer where the car will be delivered and registered. Out-of-state delivery or a later move can affect the taxes and credits that apply. Check your state; our state guides, including Florida, New York, Texas and California, cover local differences. A national example cannot settle your tax bill.
Next, use the negotiation playbook to turn those numbers into a written quote.
Check your state and your car
Use the state lease-tax research to prepare tax and fee questions, and leasing by make to build a vehicle and quote checklist. Confirm every figure in your written offer.