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Comparing the leases -- do the math and save

To get a good deal on a lease -- especially one that has an unusual length -- you had better learn the lease lingo and be able to do the math. The most important thing to understand about leasing is that your monthly payments are based on how much the car will depreciate

Depreciation
An asset's decline in value over the course of its useful life. Autos depreciate steeply in their first few years, beginning at the moment they are driven off the lot. In an auto lease, a charge for depreciation is the chief part of a consumer's monthly payment. during the term of the lease. That's figured by calculating the difference between the price of the car today (the "capitalized costCapitalized (cap) cost
A leasing term that refers to the price of the car. The lower the capitalized cost, the lower the monthly lease payment. The cap cost is negotiable and can be reduced by a cash down payment, trade-in or a manufacturer's rebate; it can be increased by the loan acquisition fee or costs left over from a previous lease.") and the estimated value of the car when you return it (the "residual valueResidual value
The amount agreed upon to represent the value of the car at the end of a lease."). In addition, you have to pay a lease fee based on a different kind of interest rate called the money factorMoney factor
A leasing term that expresses the cost of borrowing. It is similar to the interest rate paid on a conventional car loan, but it is expressed as a difficult-to-understand fraction. To convert the money factor to a recognizable interest rate, multiply it by 24. For example, a money factor of .00345 x 24 = 8.28 percent interest. The money factor is negotiable, and consumers who lease a new car should look for a money factor close to the current interest rate charged for new-car loans..

Lease comparison

This table provides an example of how you would calculate your lease cost, and provides space for you to fill in two deals that you're trying to compare.

	Example	Deal 1	Deal 2
The capitalized costCapitalized (cap) cost A leasing term that refers to the price of the car. The lower the capitalized cost, the lower the monthly lease payment. The cap cost is negotiable and can be reduced by a cash down payment, trade-in or a manufacturer's rebate; it can be increased by the loan acquisition fee or costs left over from a previous lease. of the car	$25,000
Less your down payment	-2,000	-	-
New capitalized cost	$23,000
Less the residual valueResidual value The amount agreed upon to represent the value of the car at the end of a lease.	-11,250	-	-
Equals the depreciate Depreciation An asset's decline in value over the course of its useful life. Autos depreciate steeply in their first few years, beginning at the moment they are driven off the lot. In an auto lease, a charge for depreciation is the chief part of a consumer's monthly payment.	$11,750
Divide by number of months in the lease	÷ 36	÷	÷
Equals monthly depreciation amount	$326

New cap cost plus residual value	$34,250
Times money factorMoney factor A leasing term that expresses the cost of borrowing. It is similar to the interest rate paid on a conventional car loan, but it is expressed as a difficult-to-understand fraction. To convert the money factor to a recognizable interest rate, multiply it by 24. For example, a money factor of .00345 x 24 = 8.28 percent interest. The money factor is negotiable, and consumers who lease a new car should look for a money factor close to the current interest rate charged for new-car loans.	x .0026	x	x
Equals lease company fee	$89

Monthly depreciation	$326
Plus lease fee	+ 89	+	+
Equals monthly payment	$415
Source: The Insider's Guide to Buying and Leasing a New or Used Car

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-- Updated: Sept. 6, 2006

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