How do cap cost, residual and money factor combine?
Think of a lease as paying for the slice of the car's value you use, plus a charge for the money tied up in the car. The slice you use is the depreciation: adjusted cap cost minus residual. Dividing it by the term gives the monthly depreciation charge.
The finance charge, sometimes called the rent charge, is the adjusted cap cost plus the residual, times the money factor. Adding the two figures together and multiplying by the money factor is a shortcut that equals charging interest on the average amount of value outstanding during the lease, which is why the residual appears in the finance charge even though you never pay it off.
The calculator also reports the residual in dollars, the total of all monthly payments, the total including your cap cost reduction, and the money factor times 2,400 as an equivalent APR. Taxes, acquisition and disposition fees, and mileage or wear charges are not included.
Adjusted cap cost = Cap cost − Cap cost reduction Residual = Cap cost × residual % Depreciation = (Adjusted cap cost − Residual) ÷ n Finance charge = (Adjusted cap cost + Residual) × MF Payment = Depreciation + Finance charge Equivalent APR ≈ MF × 2,400
- MF
- money factor, the lease rate written as a small decimal
- n
- lease term in months
- Residual %
- expected end-of-lease value as a percentage of the cap cost
Example: a 36-month lease on a $38,900 car
Scenario: A driver negotiates a $38,900 cap cost, pays $2,000 as a cap cost reduction, and is quoted a 58% residual and a 0.00215 money factor for 36 months.
- Adjusted cap cost$38,900 − $2,000 = $36,900.00
- Residual value$38,900 × 58% = $22,562.00
- Monthly depreciation($36,900.00 − $22,562.00) ÷ 36 = $398.28
- Monthly finance charge($36,900.00 + $22,562.00) × 0.00215 = $127.84
- Monthly payment (pre-tax)$398.28 + $127.84 = $526.12
- Totals$526.12 × 36 = $18,940.32; plus $2,000 down = $20,940.32
- Equivalent APR0.00215 × 2,400 = 5.16%
The pre-tax payment is about $526.12 a month, and the lease costs $20,940.32 over three years including the cap cost reduction.
If the residual were 52% instead of 58%, the payment would rise to about $585.94, since you would be paying for more depreciation.
When is a lease calculator worth running?
Checking a dealer's lease quote
Ask for the cap cost, residual, money factor and term, then enter them here. If your payment is lower than the quote, something else, such as fees or a higher money factor, is in the dealer's figure.
Deciding whether to put money down
Run the lease with and without a cap cost reduction. You will see how much the payment falls, and you can weigh that against the risk of losing the money if the car is totaled.
Comparing lease terms
Try 24, 36 and 39 months with the residual quoted for each. Longer leases spread depreciation further but usually come with lower residual percentages.
Translating a lease rate into loan terms
The equivalent APR lets you set the lease's finance cost beside a loan rate you have been offered, which helps when weighing a lease against buying.
Which lease mistakes inflate the payment?
Negotiating the payment instead of the cap cost
The cap cost is negotiable just like a purchase price. Agreeing on a payment first leaves room for a higher cap cost or money factor.
Not asking for the money factor
Some quotes show only a payment. Without the money factor you cannot tell whether the finance charge has been marked up, so ask for it in writing.
Forgetting tax and fees
Acquisition fees, registration and sales tax on the payments can add a noticeable amount. Add them to your comparison even though this calculator leaves them out.
Underestimating your mileage
Lease mileage allowances are set in the contract, and each mile over is charged at turn-in. Picking a higher allowance up front usually costs less than paying overage charges.
Treating cap cost reduction as safe
Cash down on a lease is generally not refunded if the car is stolen or totaled. Gap protection covers the lease balance, not the cash you put down.
What does the money factor do to a lease payment?
The money factor is the lease's financing price. Because it is written as a tiny decimal, small-looking changes are easy to miss. The table holds the example's cap cost, reduction, residual and term steady and changes only the money factor.
Moving from 0.00215 to 0.0030 raises the equivalent APR from 5.16% to 7.20% and adds $50.55 a month, or $1,819.80 over 36 months. The depreciation portion does not change at all, so the whole difference is finance charge. That is why asking for the money factor, and converting it to an APR, matters.
| Money factor | Approx. APR | Finance charge | Monthly payment | Total of payments |
|---|---|---|---|---|
| 0.0015 | 3.60% | $89.19 | $487.47 | $17,548.92 |
| 0.002 | 4.80% | $118.92 | $517.20 | $18,619.20 |
| 0.00215 | 5.16% | $127.84 | $526.12 | $18,940.32 |
| 0.0025 | 6.00% | $148.66 | $546.94 | $19,689.84 |
| 0.003 | 7.20% | $178.39 | $576.67 | $20,760.12 |
How is sales tax handled on a car lease?
It depends on your state. Many states charge sales tax on each monthly lease payment, so you pay tax only on the portion of the car you use. Some states instead tax the full price or the total of payments upfront, and some tax the cap cost reduction separately at signing.
With monthly taxation at an illustrative 7% rate, the example's $526.12 payment would carry $36.83 of tax, or $1,325.88 over 36 months. If your state taxed the full $38,900 cap cost upfront at the same rate, the tax would be $2,723.00. Check your state's motor vehicle or revenue agency, and add the tax to the payment this calculator shows.
Terms used on this page
- Money Factor
- The money factor is the finance charge rate on a car lease, written as a small decimal such as 0.00250. Multiply it by 2,400 to get an approximate equivalent APR, so 0.00250 is roughly 6.00%. Along with the capitalized cost and residual value, it determines the rent charge portion of your monthly lease payment.
- Residual Value
- Residual value is the estimated worth of a leased vehicle at the end of the lease, set by the leasing company when you sign. It is usually stated as a percentage of the sticker price. A higher residual means less depreciation to pay for during the lease, which lowers the monthly payment, and it is also your buyout price.
- APR (Annual Percentage Rate)
- APR is the yearly cost of borrowing expressed as a single percentage that includes the interest rate plus certain required fees, such as origination charges. Because lenders must calculate it the same way under federal Truth in Lending rules, APR lets you compare loan offers on an even footing.
- Down Payment
- A down payment is the cash you pay upfront toward a purchase, such as a car or home, so you borrow less. A larger down payment reduces the loan principal, the monthly payment and total interest, and it lowers the chance of owing more than the item is worth. It can also help you qualify for a better rate.
Car Lease Calculator: common questions
How do you convert a money factor to an APR?
Multiply the money factor by 2,400. A money factor of 0.00215 is about 5.16%, and 0.0025 is about 6%. The figure is an approximation that works because of how the finance charge is computed on the average of the cap cost and residual; it is not a disclosed APR. To go the other way, divide an APR by 2,400: a 4.8% rate corresponds to a money factor of 0.002. Dealers sometimes drop the leading zeros when quoting it, so confirm the exact decimal before converting.
What is a good money factor on a car lease?
A good money factor is one that converts to an APR close to the loan rates you qualify for. Since the money factor depends on your credit and on promotions the leasing company offers, there is no single good number. Convert any quote to an APR and compare it with a loan preapproval.
Why does a higher residual value lower my lease payment?
You pay for the difference between the adjusted cap cost and the residual, so a higher residual means less depreciation to cover each month. The residual is set by the leasing company based on its forecast of the car's future value. A high residual also raises the buyout price if you decide to purchase the car at lease end.
Is putting money down on a lease a good idea?
A cap cost reduction lowers the payment and the finance charge, but you generally lose it if the car is totaled or stolen. Many people prefer a smaller drive-off and a slightly higher payment for that reason. Compare the total cost both ways using this calculator. Rebates or trade-in equity applied as a cap cost reduction carry the same risk as cash, so some lessees prefer to take a rebate as a check when that option exists.
Can you negotiate the residual value on a lease?
Usually not. The residual is set by the leasing company for the model, term and mileage allowance. What you can negotiate is the cap cost, and sometimes the money factor, along with fees. Choosing a different term or mileage allowance changes the residual the lessor applies. Because the residual is fixed, a lower negotiated cap cost reduces the depreciation you pay dollar for dollar, which makes the price the most important number to work on.
Does the lease payment include sales tax?
The payment this calculator shows is before tax. In many states tax is added to each monthly payment; in others it is charged upfront on the price or total payments. Add your state's tax treatment to get the amount you will actually pay each month. For a rough monthly figure in a state that taxes payments, multiply the calculated payment by one plus your combined tax rate.
What fees are not in a car lease calculation?
Common charges outside the base payment include an acquisition fee at signing, a disposition fee at turn-in, registration and title fees, and charges for excess mileage or wear. Some can be paid upfront or rolled into the cap cost. Ask for an itemized list so you can compare leases fairly.
Is the residual value the price to buy the car at lease end?
Usually yes. The lease contract generally sets a purchase option price equal to the residual, sometimes plus a fee. Whether buying makes sense depends on what the car is worth at that time compared with the buyout. If the car is worth less than the residual, returning it usually makes more sense, and the leasing company absorbs the difference. Check the contract for any purchase option fee before deciding.
How many months should a car lease be?
Common lease terms are 24, 36 and 39 months, and many drivers aim for a term that ends within the factory warranty. Longer terms spread depreciation over more payments but often come with lower residual percentages, so the payment does not fall as much as you might expect. Run each term with the residual quoted for it.
What happens if I end a lease early?
Ending a lease early usually triggers an early termination charge, which can be large in the first part of the term because the balance owed is still high. Options such as a lease transfer or buyout may be available depending on the contract. Read the early termination section before you sign.
Sources
- Auto loans — Consumer Financial Protection Bureau. Accessed October 17, 2026.
- Credit reports and scores — Consumer Financial Protection Bureau. Accessed October 17, 2026.
We cite primary sources: regulators, central-bank data and federal agencies. Worked examples on this page are our own calculations, last checked October 17, 2026. See our methodology.