LEASING A CAR

Manufacturer's Suggested Retail Price (MSRP) =

$30,000

Negotiated Price (Capitalized Cost) A =

$27,000

Down payment or Trade-in (Capitalized Cost Reduction) D =

$4,000

Worth, after Depreciation (Residual Factor) f =

Term (months) M =
Annual Interest Rate I =

Monthly Lease Payments MD + ML =

magic formulas (found on the Web)
RESIDUAL VALUE = Residual Factor x MSRP

50%
36
8.00%

$348.89
$401.22

= payments for a 36-month loan of $11,134 at 8.00%

15%

(value of car at end of lease)

MONTHLY DEPRECIATION FEE = (COST after REDUCTION - Residual Value) / LEASE TERM
MONTHLY LEASE FEE = (COST after REDUCTION + Residual Value) x Interest Rate /24
"MONEY FACTOR" = (Interest Rate)/24 and ANNUAL INTEREST RATE is expressed as a percentage
TOTAL MONTHLY LEASE PAYMENT = Monthly Depreciation Fee + Monthly Leasing Fee
Compare to borrowing the money: $23,000 at 8.0/12 % per month so that the balance is $15,000 after 36 months.
Amount Borrowed=
$23,000
to buy the car (after down payment)
Residial Value=
$15,000
value of car after 36 months
Monthly Bank Payments=
$350.69
so that the balance due is $15,000 after 36 months
Scenario (1) The dealer sells the car and gets $27,000. After 3 years at 8.00% per year, this is worth $34,296 to the dealer.
Scenario (2) They lease the car, receiving $348.89 per month. Suppose they invest these payments at 8.00% per year.
36 months of these investments are worth $14,142. The $4000 down payment is worth $5081 after 3 years (at 8.00% per year).
Adding: $15,000 (residual value) + $14,142 (monthly investments value) + $5081 (down payment value) = $34,223.
These two numbers, $34,296 and $34,223, should be about the same.

See:

Three Magic Formulas (from http://home.golden.net/~pjponzo/Car-Leasing.htm)

Dealer's Formula .

More Accurate .

a Bank Formula .

Example

MSRP

Residual Value f*(MSRP) = Res = $15,000

$30,000

Capitalized Cost

Depreciation Dep = $15,000

$27,000

Down Payment

Cost after Reduction A - D = $23,000

$4,000

Worth (after depreciation)

Monthly Depreciation Fee (A - D - Res) / M = MD = $222.22

55%

"Money Factor" I / 24 = Mf = 0.0033

Residual Value

36

Monthly Leasing Fee (A-D+Res)*M = ML = $126.67

Interest Rate

8.00%

= payments for a 36-month loan of $11,134 at 8.00%

Months

$312.22

Depreciation Fee =

added, for taxes, etc.

Leasing Fee =
Enter values in

al Value) / LEASE TERM

Lease Payments =

a red box

x Interest Rate /24

TE is expressed as a percentage
nthly Leasing Fee

Look here

o that the balance is $15,000 after 36 months.

to buy the car (after down payment)
value of car after 36 months
so that the balance due is $15,000 after 36 months
8.00% per year, this is worth $34,296 to the dealer.
e they invest these payments at 8.00% per year.
ayment is worth $5081 after 3 years (at 8.00% per year).
) + $5081 (down payment value) = $34,223.
http://home.golden.net/~pjponzo/Car-Leasing.htm

ar-Leasing.htm)

$400.00

$348.89

Monthly Payments vs Interest Rate

$350.00
$300.00
$250.00

$344.72

$200.00
$150.00
$100.00
$50.00
8.0%

7.0%

6.0%

5.0%

4.0%

3.0%

2.0%

1.0%

$0.00
0.0%

$346.17

$30,000

$30,000

$30,000

$30,000

$30,000

$30,000

$30,000

$30,000

$30,000

$27,000

$27,000

$27,000

$27,000

$27,000

$27,000

$27,000

$27,000

$27,000

$4,000

$4,000

$4,000

$4,000

$4,000

$4,000

$4,000

$4,000

$4,000

50.0%

50.0%

50.0%

50.0%

50.0%

50.0%

50.0%

50.0%

50.0%

$15,000

$15,000

$15,000

$15,000

$15,000

$15,000

$15,000

$15,000

$15,000

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

36

36

36

36

36

36

36

36

36

$222.22

$222.22

$222.22

$222.22

$222.22

$222.22

$222.22

$222.22

$222.22

$0.00

$15.83

$31.67

$47.50

$63.33

$79.17

$95.00

$110.83

$126.67

$222.22

$238.06

$253.89

$269.72

$285.56

$301.39

$317.22

$333.06

$348.89

Enter values in
red boxes

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