How Lease Payments are Structured
Leasing a vehicle can be an attractive option for many people who want to drive a new car without committing to a long-term purchase. However, understanding how vehicle lease payments are structured can be a bit confusing. In this post, we will dive deeper into the different factors that affect car lease payments and the steps involved in calculating your own lease payment.
Factors that Affect the Lease Payment
First and foremost, a car lease payment is based on several factors, including the MSRP (Manufacturer’s Suggested Retail Price) of the car, the residual value of the car, the negotiated selling price, down payment, lease term, and the amount of mileage you will be driving. Let’s take a closer look at each of these factors:
MSRP: The MSRP is the retail price suggested by the manufacturer. This is the price that dealerships will typically use as a starting point for negotiations.
Residual Value: The residual value is the estimated value of the vehicle at the end of the lease term. This is typically expressed as a percentage of the MSRP. For example, if the residual value is 50% and the MSRP is $30,000, the residual value would be $15,000.
Negotiated Selling Price: The negotiated selling price is the price that you and the dealership agree on for the vehicle. This price can vary based on a variety of factors, including incentives, demand, and the overall market.
Down Payment: The down payment is the amount of money you pay upfront to lower your monthly lease payment. The more you put down, the lower your monthly payment will be.
Lease Term: The lease term is the length of the lease, typically expressed in months. Most leases are between 24-48 months, although some can be shorter or longer.
Mileage Allowance: The mileage allowance is the maximum number of miles you can drive during the lease term without incurring additional fees. This is typically expressed as a yearly allowance, such as 12,000 miles per year.
Steps to Calculate Your Lease Payment
Now that you understand the various factors that go into a vehicle lease payment, let’s walk through the steps to calculate your own lease payment.
Step 1: Start with the MSRP of the car and multiply it by the residual percentage to get the residual value in dollars.
Step 2: Take the negotiated selling price and add in all DMV and bank fees to get the cap cost.
Step 3: Subtract the residual value from the cap cost to get the depreciation amount.
Step 4: Divide the depreciation amount by the number of months in the lease term to get the base payment.
Step 5: Add the rent charge to the base payment to get the final payment (excluding local sales tax).
It’s important to note that this calculation only gives you an estimate of your lease payment. Your actual payment may be different based on factors such as the money factor (similar to interest rate), taxes and fees, and any promotions or discounts that may apply.
An Easier Way to Calculate Your Lease Payment
If all of these calculations seem overwhelming, don’t worry! There are tools available to help you. The LeaseMax software mentioned in the original video is one such tool. All you have to do is provide the car you’re interested in, and our software will calculate your lease payment for you in just a few minutes. This can save you time and stress, and help you make an informed decision about whether leasing a vehicle is right for you.
In conclusion, understanding how a vehicle lease payment is structured can help you make a more informed decision when it comes to leasing a car. By considering factors such as the MSRP, residual value, negotiated selling price, down payment, lease term, and mileage, you can estimate your own lease payment and determine whether leasing is the right choice for you. And if you’re feeling overwhelmed by the calculations, LeaseMax can do this for you for an affordable price. Get started with LeaseMax today to quickly and easily get the best price on any new vehicle.