Calculate Your Own Lease Payment
You’ve probably saved up enough for your first car and are looking to walk your way to the dealer now. But before you go ahead with the process, it is important that you understand how the lease payment on your vehicle will work. It isn’t really complicated. With the right guidance, you will be able to work though the calculations smoothly. Once you’ve learned how to calculate the lease payment, you will be able to crack the best deal with the dealer. The steps listed below will help you understand the total budget for the lease:
Information You Need to Gather
You will need to find out the sticker price of the vehicle or the MSRP, also known as manufacturer’s suggested retail price.
The selling price of the vehicle is equally important. This price is lower than that of the MSRP, does not include any fees or taxes and is considered the final price after an agreed negotiation.
It is also vital that you understand any rebate or incentive the dealer has agreed to offer on the car you’ve selected.
You will also need to pay special attention to the residual value. This represents the worth of the vehicle after a given period of time. This percentage is usually penned down by the manufacturer.
The length of the lease is usually for a period of 36 months. Make sure to understand the length you are offered.
The APR or the money factor is of great importance too.
How to Determine the Depreciation Factor?
The only way you will be able to understand how much the vehicle’s value would eventually decrease during the lease period is by simply determining the depreciation. During this period, the residual value is subtracted from the capitalized cost and is further divided by the monthly lease term.
Let’s take for example that the MSRP of the vehicle amounts to $40,000. We could assume that the manufacturer would have set the lease period for 36 months and would have set the residual percentage at 50%. The residual would, therefore, stay at $20,000. Now, if you do manage to negotiate the deal for $35,000, then you will be able to receive incentives and a rebate of $5,000. The capitalized cost will then amount to $30,000.
Looking further, the capitalized cost that amounts to $30,000 when subtracted from the residual amount of $20,000 would total to $10,000. If you divide this amount by the 36-month lease period, you will receive the depreciation cost of $278 per month.
In the same way, it is vital that you also research and understand how the finance charge could be calculated. You may also want to keep in mind any other fees that could be charged. These include sales tax, tax on incentives, rebates and document fees.
In all, make sure that you understand how to calculate the monthly lease payment before going ahead with any decision.