Estimating Your Payments with the RWG Calculator

Any savvy lessee can tell you that the key to getting a good lease is “knowledge”. If you don’t know how to estimate payments, you run the risk of being fleeced by your salesperson. The only way to prevent this is to determine what a “realistic” payment is and try to work with your salesperson to achieve that.  Realistic payment estimates are essential because no dealer will work with you unless they are able to make some money out of each transaction. Like us, they got bills to pay too. Below, your will see a few lease calculation examples that should help you with your negotiations.

Calculating Your Payment – Inception fees due at signing

The quickest way to estimate lease payments is to assume you will be paying your inception fees upfront. This way, your calculations remain simple and quick. All you need are the basics: MSRP, Sale Price, Term (in months), Residual Value and Money Factor. If you want to take advantage of the RWG rating, you will need to know your mileage allowance as well. Check out the example below:

36 month | 15k miles | residual 61% | .00170 base money factor
MSRP – $36,490
Sale Price – $32,567 (TrueCar price minus $1000 rebate)
Monthly – $380+ tax
RWG Rating – 93.9

The assumption is that you will pay your inception fees upfront and keep it separate from your loan. Since the drive-off (inception) fees fluctuate depending on the cost of the vehicle, I generally assume it’s approximately $1500-$2000. Inception fees normally consist of the following: Your first month payment, Bank Fees, Dealer Fees, County/City fees, DMV registration and sales taxes associated to any rebates you are getting. In some states, you may have to include the sales tax for a portion of your lease depreciation or 100% for your vehicle’s value. For most states, sales taxes are calculated as an “use tax”, which is applied to your payment on a monthly basis.

Based on my location, my inception fees would amount to approximately $1335. Here’s how I estimated that:

DMV $315 (CA DMV Registration Calculator)
Bank Fee $595 (List of Bank Fees)
Dealer Doc Fee $45 (Capped in California, other states are uncapped so could be in the hundreds).
First Month Payment $380

Total Estimated $1335.

This number is actually low because there are extras fees associated with your DMV registration. In addition, cities will sometimes charge extra fees here and there as well. If the dealer does electronic filing of your registration, there will be a cost associated with that too. If that wasn’t enough, you also have to pay taxes on any rebates and any advertising fees that certain dealers charge (Think MACO and Training for BMWs). When it’s all said and done, expect to pay AT LEAST $1335. To be on the safe side, I like to estimate my inception fees to be in the $1500 range and if you pay advertising fees, it’s more like $2000. The best way to know what you are paying for is to have your dealer itemize these fees so you know exactly where your money is going.

Once you have determined what to expect (in this case, you are looking at a $1500 drive-off with a $380 monthly payment +tax) you will know what to tell your dealer when they ask you how much you can “afford” per month and how much you plan to “put down”.

Calculating Your Payment – $0 Drive-Off

To get an idea as to what you would be paying per month on a $0 drive-off deal, you simply add-on the drive-off to your sale price. In this case, we know the sale price minus the rebate on the 2012 TL is $32567 and we estimated our drive-off to be about $1500. This comes up to a total of $34067 for your sale price (which we generally refer to as cap cost). In order to figure out the monthly payments, just plug the total into the sale price Fees to Roll In (thanks for the correction BD) field of the calculator and hit “calculate”. If you have to pay all your sales tax upfront, add that in there as well.

36 month | 15k miles | residual 61% | .00170 base money factor
MSRP – $36,490
Sale Price – $32,567  (TrueCar price minus $1000 rebate)
Fees Rolled In – $1500 (Estimated inception fees)
Monthly – $424+ tax
RWG Rating – 93.5

One thing to note here is that this is a simplified approach, so your dealer’s numbers will vary slightly (usually a little higher). However, I think that you should be within reasonable dollar amount so it shouldn’t be that big of a deal.

It is more advantageous to do a $0 drive-off lease when the money factor is low. Please note that the $0 drive-off leases do take a very small hit on my RWG rating system (about 0.4 pts) and that is due to the fact that you are paying interest and taxes on items such as your DMV registration, bank fees, dealer fees,  and so on. But in the grand scheme of things, those costs shouldn’t be too significant if your money factor is low.

RWG Rating System

The rating system I use is fairly straight forward. Anything above a 90 rating is considered a good lease. Ratings higher than 100 are exceptional. Ratings lower than 85 should probably not be considered. Personally, I would not recommend leasing anything below a 90 rating if getting more car for your money is a top priority. If you are willing to pay a little extra to get what you want, I wouldn’t go below 85. Please note that the rating does not take into consideration sales taxes and it also assumes you will pay your inception fees up front.

If you plan to use the rating system to compare $0 drive-off deals, make sure to do that for all cars to ensure a fair comparison. I would recommend adding $1500 to the sale price for all vehicles in the comparison to compensate for the usual drive-off costs.

How to Identify Good Deals

There isn’t a fancy way to figure out what makes a lease a good one. The best way to get a “DEAL” is to make sure at least TWO of the THREE main components of a lease are attractive. By components, I mean the following:

Residual Value. The first thing I look for is a HIGH Residual Value. I do not typically buy my cars at lease-end so leasing a car with a low residual value doesn’t make any sense. Because of that, I like to go for models that have residual values in the high-50% or low-60% on 36-month terms. I find 36-month terms to be optimal in terms of payments and wear-n-tear. 24-month are great, but may feel a tad short, while 48-month leases are too long and add too many unexpected expenses.

Money Factor. You want to keep this low so you don’t get charged too much interest on the loan. I usually shoot for leases with the “four zeros”, the ones that fall below 0.00100 or 2.4%.  You can calculate the interest rate by multiplying the money factor by 2400.

Sale Price. An aggressive sale price is also a great way to keep your payments low. As you know, the size of your lease loan is determined by the difference between your sale price and residual value. If the gap between your sale price and residual value is low, the size of your loan will be smaller. This will also help keep the finance charge (money factor/interest) minimal, thus keeping your payments lower. Sale prices that are close to 10% off MSRP are probably the best. Any percentage above that is just icing on the cake.  A good deal hunter would generally look for a vehicle that sells for a big discount (plus rebates and incentives), high residual value and low money factor. This combination typically yields the lowest monthly payments and gives us the most bang for the buck.

What’s a good example of a good deal? For the month of July 2011, the 2011 Infiniti G37 Journey Sedan looks very attractive. It boasts one of the higher residual values for 2011 models (58% @ 15k miles per year over 36-months) and has an easy-on-the-pocketbook 0.00058 money factor that breaks down to a low interest rate of 1.4%. The average sale price for this sedan in the Southern California region is 12% off MSRP and as of July 2011, there’s $1000 loyalty cash and $1000 dealer cash that’s available until August 1st, 2011. This certainly isn’t the only car that’s considered a good deal, but it’s one of them.

Here’s are some helpful links to get you started on how to estimate your own lease payments:

Now go find yourself a good deal!

Lease Calculator 2.1

UPDATED Per JR’s suggestion, I have modified the CAP COST REDUCTION AFTER TAX to add the tax to the cap reduction and subtract the tax you pay up front.

I’ve made a minor update to the Lease Calculator. You can download the latest version by clicking on the image below.

What’s New?
I have incorporated the Deal Rating, which is an general indicator as to how good your deal is. This is based on the discussion Matthew and I had in the E-Class July 2009 post, where Matthew stated that his brother, who works in the industry, considers deals around 1.0% of a car’s value (MSRP) to be an excellent lease. Based on my past experiences, I have concur with his assessment for the most part. However, I think that in today’s market, were leasing has become a bit more expensive, anything under 1.2% before taxes is a pretty sweet deal. Let us take the 09 Acura TL deal I received a few days ago as an example.

MSRP – 39,445
Sale – 32,595
Residual – 53% (15k/yr for 36-months)
MF – 0.00184
Payment – $423

Rating – 1.07 (Excellent)

With a 1.07 rating, The Acura TL I got a few days ago is great. I would have been that much better if it included tax, but our taxes here in California have gone up 1.5% in that last 3 months, so that puts a pretty huge damper on almost any lease. Still, this was pretty solid.

Now lets take a look at the MB E350 where I am going to take Lee’s quote as an example.

MSRP – 57,085 (Prem I, Sport, Woodgrain)
Selling price – $43,585 (10,000 MB cash + 3,500 off)
Residual – 36mos./15K (43%)
MF – .00165
Payment – $642

Rating – 1.12 (Good)

As you can see, this deal really is very good. Some people, such as Wayne have reported the following deal: 56,775 MSRP / 41,494 Sale Price. That calculator spits out a cool 1.03 rating which is pretty awesome.

I figured this addition into the calculator should help you in your decision process, so have fun with it. As always, I welcome any thoughts and/or suggestions on how to improve this calculator. If you are having any problems with it, remember to keep it simple. Don’t roll in any fees or cap reduction and you should get a pretty good idea how good the deal really is.



If you are a RIDE with G regular, you have probably heard me talk about “lease-to-buy” numerous times, specially when it comes to Mercedes-Benz models. The whole concept of “lease-to-buy” refers to the idea of leasing with the intention of purchasing the car at lease-end. It is a very good way of getting into a nice ride with little or no money down and save some money should you decide to buyout the car. In this post, I will examine some key aspects of “lease-to-buy” and how it can save you some money compared to other leases and traditional financing.

When you lease a car, you normally want a high residual value and a low money factor since this combination yields the lowest monthly payments. This is because when your depreciation and money factor are low, your payments stay low. In a “lease-to-buy” scenario, you want the majority of your payments to go towards the depreciation of the lease loan so the payoff price at the end of your lease is lower. The best way to accomplish this is to find a car with a low residual value and a low money factor. This will ensure that the bulk of your monthly payments go towards the car, instead of the financing charge.

For the sake of comparison, lets take the CLK350 coupe vs the BMW 528xi Sedan. I know they are different classes of cars, but this is purely a numbers comparison, so bear with me.

2009 Mercedes CLK350 Coupe
36-month | 15k miles | residual 44% | .00008 base money factor (0.192% APR)

MSRP $48,975
Invoice $45,608
Monthly $668 (depreciation) + $5 (finance charge) = $673 + tax
Payoff $21,549 + tax

2009 BMW 528xi Sedan
36-month | 15k miles | residual 58% | .00175 base money factor (4.2% APR)

MSRP $48,925
Invoice $45,075
Monthly $463 (depreciation) + $128 (finance charge) = $592 + tax
Payoff $28,376 + tax

At first glance, you will notice the higher payments on the CLK350, don’t panic. It ends up being about $81 more per month on the CLK, which boils down to about $2,916 over the course of three years. Not bad considering the difference between the BMW and MB’s payoff is about $6,827 ($28376-$21549). That’s a savings of about $3,911, should you decide to buy the CLK instead of the 528xi at lease-end. As you can see, certain cars should never be bought at the end of a lease, specifically those with high money factors and high residual values. Now, if you plan to lease forever, then the BMW is clearly the better choice due to the lower monthly payments.

Here are a few things to look out for before you decide whether you want to “lease-to-buy”:

  1. Make sure the money factor is much lower than the best purchase financing rate that’s available. You can find out what APR your money factor is by multiplying the money factor by 2400.
  2. At lease-end, you will need to either pay the entire payoff balance upfront OR secure a low rate for the remainder of your loan to keep some of those savings. Keep in mind that your car would be considered “used”, which means low rates on loans may be a bit tough to get. The upside to this is that you aren’t taking out a loan on a $48,000 car.

Lastly, some cars are being heavily discounted from month-to-month, such as the CLK in April 2009. The monthly payments may very well be less than the $673 + tax that I estimated depending on how much you can lower your gross cap cost. The bottom line is this, you can save money even if you decide to buyout your car at lease end, you just need to know what to look for and plan ahead.

Breaking a Lease and Other Options

There may come a time when the lease you signed last month has suddenly become a financial burden and you need to unload your vehicle. Whatever your reasons may be, know one thing, IT WILL COST YOU. Before you enter a lease agreement, make sure you have a solid understanding of your “termination” options and costs. You may never need it; then again, you never know. There are generally three options available to you when choosing to terminate your lease.

Pay the termination fee

The quickest way is to look in the back of your contract and look for the “termination” section to see what fees you will be assessed if you elect to terminate your contract with your lessor. Not all banks handle the situation the same, so I cannot generalize. One thing is for certain, you will be paying thousands of dollars to get off your lease.

Trade-in the vehicle

I have actually used this option a few times (on my ’01 325i and ’04 Mazda3). Essentially, you are trading in your car as if you purchased it. The dealer will appraise your car and make an offer. You will then be responsible for the difference between your vehicle’s “buyout” price and the dealer’s “trade-in” offer. This method is best when you have a popular vehicle with low miles and in excellent (no accidents) condition. In some cases, a dealer may even offer you more than your “buyout”, thus giving you some equity on your trade-in. It is important that the dealer does not know what your “buyout” is. Otherwise, they may just get an offer for the “buyout” price or less. Say nothing until they give you a figure and try to talk them up a bit.

There is a catch, though. Not all dealers are willing to buy out your car without having you purchase another from them. In my experience, only CarMax will buy your car from you without requiring you to buy from them. They will even offer you a quote that is good for 7-days. Contrary to popular belief, they will not always offer you the best trade-in value, so you may need to shop your car from dealer-to-dealer to get the best offer.

Use online lease swapping services

There are websites out there (such as LeaseTrader) that offer lessee’s the ability to trade your lease to someone else. They put your car on their online marketplace to see if there are other people willing to assume the remainder of your lease payments. Once there is a match, they will help you process the paperwork and do the transfer. I have not done this personally, but most folks seem to have a good experience with it and I haven’t heard of any horror stories, yet. Just remember that if you got yourself into a bad lease, you may not have much luck getting someone to assume it unless you throw in some cash incentives. Plus, it may also take you some time before you find someone willing to assume your lease. We’re talking weeks, maybe months.

An alternate solution

Another option that most people do not consider is reworking their lease into more affordable payments. This would be the preferred option if you really want to keep your car, but need to make the payments lower. Sites such as LowerMyLease should offer a good solution for those seeking to lower their lease payments.

Unfortunately, making a bad decision has it’s consequences. That is why I stress that you stay away from negotiating monthly payments and follow the steps outlined in my Auto Leasing Guide. Do your homework before entering any type of negotiation and don’t fall in love with a particular car because not all cars lease well from month-to-month. Have a few other options available just in case the car you want isn’t offering attractive lease rates.