Lease Formula

Here are the mechanics of how to calculate your own lease, without a lease calculator. Understanding the formula comes in handy when you are at the dealership and do not have access to internet or a computer with a lease calculator. It’s pretty useful if you want to cross-check the dealers math.

What you need:

  • MF: The Money Factor. (You can find out what your interest rate is by multiplying the money factor by 2400)
  • RV: Residual Value. What the car is worth at lease-end.
  • CC: The Capitalized Cost AKA Sale Price.
  • LST: Local Sales Tax.
  • M: Term of the lease (24,36,48,etc)

I am going use the latest quote I got for the G37 I was shopping for as an example.

Step 1: Monthly Depreciation Charge

(CC – RV) / M

(32,916 – 22,185) = 10,731 / 36 = $298.08

Step 2: Monthly Finance Charge

(CC + RV) * MF

(32,916 + 22,185) = 55,101 * 0.00186 = $102.49

Step 3: Total Monthly Charge (plus tax)

(Monthly Depreciation Charge + Monthly Finance Charge) * LST

(298.08+102.49) = 400.57 * 1.0825 (8.25% tax) = $433.62

The actual quote I got is $453 a month. Why the $20 difference? Because they rolled in the Acquisition fee (bank fee) of $595 into the Cap Cost of the car. So keep that in mind next time you lease. Its probably better to pay that upfront. Otherwise, that $595 ends up costing $720 after all is said and done.

Lease Calculator

85 thoughts on “Lease Formula

    • @robert. you put it in as “cap reduction” which gets taxed. personally, I don’t recommend putting a down payment.

      • If you don’t reduce the cap with a down payment, you will have a higher monthly payment that will be taxed. Your higher monthly will not only be taxed, but you will pay interest on the higher monthly payment. Put as much as you can afford down.

    • ohh sorry. I kept thinking you were referring to the calculator. you have to apply the cap to the sale price. If you sale price is $30,000 and you plan to put $3,000 worth of cap reduction, then you will need to adjust the sale price to $27,000. Of course, you need to also factor in the sales tax for $3k in cap reduction, which you either roll into your payments OR pay up front.

  1. Hi G,

    I have been reading for a while now. I have gone back and forth between luxury SUVs. I actually have finally decided on a 2011 Mercury Mariner. There really is not much info on them as far as leasing, prices, etc.. I was hoping you could help me out. So far this is the deal I have:

    2011 Mercury Premier I4 FWD Loaded (nav, sunroof, etc.)

    MSRP 30,495
    Cap Cost 23,000 (negotiating still)
    Residual 61%
    MF .000001
    Miles 10,500

    • Hi Kelly! glad to hear from you. I think the numbers look fantastic at first glance. How many month’s is this lease? Also, please double check the MF, it almost seems like it has one too many zeros. Of course the more zeros, the better.
      You are correct with your conclusion that there isn’t much info out there on the Mariner. Ford seems to have decided to give Mercury the axe, so you probably wont see anymore new ones on the road in a year or so. This could be the reason why you are getting such an aggressive sale price. I would say keep pushing because they have more to lose than you. Anyway, let me know what term you are looking at so i can do a quick payment estimate for you.

  2. Hi G,

    Thanks for the quick response. I am doing the 27 month lease. They quoted the MF at an percentage of .25% (hence all the zeros).

  3. @Kelly. This is one AWESOME lease if you can get it at this sale price and just the inception fees. This is what I am getting in my calculations:

    $167 plus tax per month.
    The MF is 0.0001 (which is about .25% and it’s awesome)
    All you would be responsible for is the drive-off costs like 1st month, dmv, bank and dealer fees. Since this is Ford we’re talking about, they will probably charge your regional advertising fees as well. Either way, You are looking at a $30k car for probably around mid-$200 if you rolled all your fees in. If you are getting a quote higher than that with all your payments rolled in, then double check their work.

  4. Please help me double check my figures. 2011 Kia sportage LX
    msrp 20990
    sale price 20500
    residual 61%
    acq fee 595
    govt fee? 47
    MF .00195 (4.68) MY credit rating is 787 so i’m thinking i should be able to negotiate mf to .0013-.0015?
    Mich sales tax 6%

    adj cap cost 21142 (20500 +595 +47)
    r.v. 12804
    month dep fee 231.6.
    month fin chg 50.95
    month pmt 282.56 + 6% = $299.51

    Am I correct in assuming that I should not be having any sales tax figured into the ACC? (with my scenario of zero down)

    You sound very knowledgeable and thank you!

  5. Need help with a current Mercedes C250 lease. Here are my numbers, let me know what I should be paying for a monthly lease payment. I would appreaciate any other advice as well.

    39 Month lease/ 15k miles year
    Sticker Price: $44,040
    Agreed Purchase Price: $40,311
    Adj Cap Cost: $42,806
    REsidual after lease: $29,253.76

    I was planning on putitng $1900 down. They quoted me for a $509/month lease. What do you think of these numbers?

    • Why is your adjusted cap cost $2500 more than the sale price? What that $2500 in sales tax? Plus another $1900? The sale price is very good, no complaints here, just need to clarify on the extra costs.

      • I am not sure what the adjusted cap cost of $2500 is, maybe the sales tax and/or dmv fees?…All else, would you approve?

        • Double check what the $2500 is. If it’s sales tax, then it’s not so bad. If it’s not, then this doesn’t look as good. By the way, what model is this? Sedan? Coupe? What did you get quoted on for the MF and residual?


    The question I have is the one regarding monthly finance charge – what exactly is the amount that the charge is on? Is the amount being financed really the CC (Capitalized Cost) + RV (Residual Value) ? Can you help me understand the following

    – why am I adding CC and RV and then multiplying by the money factor and lease term?
    – I know that the money factor multiplied by 2400 = interest rate. Can you explain how the interest rate applies to the lease payment besides the obvious multiplication? In other words, if money factor is .0023, interest rate = 5.52%. However, what is the 5.52 %? What is the lessee borrowing at 5.52%?

    • Sorry, I don’t have a good answer for your since I’m not a finance guy. However, I did some digging around for you and this is the answer I found from an adviser on .

      The residual value is the “loan balance” at the end of the lease. Over the lease term your monthly lease payments include a principal component that chips away at the capitalized cost until at the end of the lease only the residual value remains. If you add the capitalized cost and residual value together and divide by two you’ll get the average capitalized cost outstanding over the lease term. If the capitalized cost is $20,000 and the residual value is $10,000 then, over the lease term, your average balance is $15,000 — half of the sum of the capitalized cost plus the residual value. That’s true whether it’s a two-year lease or a four-year lease.

      Multiply the $30,000 by the applicable lease factor and you’ve calculated the monthly financing fee. Using the sum ($30,000) works because the lease factor is the annual interest rate divided by 24 instead of 12. The financing cost is based on twice the average balance but the interest factor is half the monthly interest rate.

      The financing fee is added to the depreciation fee and the usage tax to arrive at the monthly lease payment.

    • Shankar,

      Great question; the short answer is that the entire “multiply by 2400 to get your interest rate” is inaccurate (not G’s fault…seems to be the industry “standard”).

      The way lease financing works is that your monthly “finance charges” are calculated based on the average of the RV (Residual Value) and NCC (Net Cap Cost) times the monthly “interest rate” (MF * 2400 / 12). Effectively they are taking the average value of the vehicle over the lease term and calculating the “finance charges”.

      The latter part of your comment is where it gets interesting and why I use different calculations to judge leases from one another. What the true effective interest rate would be is *not* the MF * 2400. The true effective interest rate would be calculated based on the lease term, total depreciation over the lease term and the monthly lease payment.

      Effectively this would allow you to think of it in the context of “if I went to a bank and asked to borrow $10,000 (total depreciation over the lease term) for 36 months and my monthly payment was $200, what interest rate would they be charging me?” This rate and the MF * 2400 are not the same figure.

      By my estimation the “true” effective annual interest rate in G’s use case above would be 20.32% assuming 36 months, $10,731 in depreciation and a $400.57 payment (pre-tax). Needless to say 20.32% is quite high for an equivalent 36 month loan.

      • DJ. Thanks for spending the time to explain this. I’m not really a financial guy I couldn’t really explain the interest rate thing.

        • My pleasure G.

          I think the real key for most users on the leasing vs. buying decision and associated criteria is that the “right” decision is wholly contingent on the given user, how they drive, how long they intend to hold a vehicle, etc.

          In my personal opinion what makes the best deal is a combination of a high residual and a MF that is at or below what I could otherwise borrow. That changes car-by-car (borrowing $10,000 of depreciation is different than borrowing $50,000), but by doing this you can minimize your lease payments while best positioning yourself for options at the lease’s end.

          If users are patient for the right deal you can often leverage current lease offers to effectively “buy” your vehicle over a longer term than traditionally offered (e.g. a 36-month lease followed by a 60-month auto loan); if you want to do this the residual is nearly a moot point so long as the “effective” interest rate on the lease is at or below market.

          Lastly, thank you for all you do on this site.

      • The best way to intuitively get this is to take it to the extremes. But first, let’s follow the money trail during the lease process.

        1) Dealer buys car from factory.
        2) Customer likes car and wants to lease it
        3) Dealer sells car to Bank
        4) Bank rents car to customer, i.e. bank owns the car and is stuck with selling it after the lease is over.

        Now imagine the bank just charged you for depreciation. That means, in G’s example where CC=$20K and RV=$10K and depreciation = DP = $10K, the bank would buy the car for CC=$20K at lease inception, charge DP=$10K for depreciation over the course of the lease, then sell the car (at auction) for RV=$10K at lease-end. So what did the bank make?? Zilch… or in a formula, it’s Profit = -CC + DP + RV = -20K + 10K +10K = ZERO.

        But the bank being a bank, it needs to make money off the money (or in this case the assets) it owns; so, it must add a cost of money fee to the depreciation fees. Here you must understand the concept of opportunity cost: at any moment in time, the bank has to know what amount of money/assets it has outstanding because those generate income for the bank. In the case of a lease, you can think of the car as a depreciable asset that’s equivalent to cash after you factor in depreciation. So, at any moment during the lease, the bank is loaning you an amount of money equal to the depreciated value of the car. Intuitively speaking, the bank is loaning you money in the form of a car, or the car is a proxy for money loaned. At inception, the loan = CC; after month 1, the loan = CC – 1 month depreciation, etc…until you reach lease end. In the US, banks use declining balance interest, meaning they charge interest only on the outstanding balance of a loan after each monthly payment. Because depreciation is assumed to be linear, an average loan balance is used to calculate the interest. The average loan balance is (CC+RV)/2. If depreciation were not linear, you’d need to use an amortization schedule or do an integral (if you have a graph).

        Now, let’s calculate the interest. The average loan is (CC+RV)/2 and let’s call the annual interest rate “APR” %. So the annual interest is (CC+RV)/2 x APR/100. To get the monthly interest, divide by 12: Monthly Interest = (CC+RV)/2 x (APR/100/12). Regrouping the equation: Monthly Interest = (CC+RV) x (APR/2400).

        That is why MF = APR/2400. And it’s an accurate assumption when depreciation is assumed to be linear.

        • This is a great explanation as to the derivation of the formula and absolutely accurate; however, in my opinion, it is still inaccurate for a car company to characterize the MF an “interest rate”.

          If this were a proxy for the interest rate my total financing costs would float with how much I’m effectively borrowing (the depreciation of the asset). This doesn’t happen in auto leasing; irrespective of how much you put down you pay the same financing fees.

          This is because the MF is in actuality a combination of the bank’s cost of capital, but moreso a hedge for the market value of the vehicle after the lease. The core of the issue lies within the fact that the formula derivation above assumes a linearly depreciating asset, which a vehicle certainly is not.

          Every deal is different and ultimately the user has to make the call on whether they believe what I refer to as the “effective” interest rate is a reasonable cost to borrow the vehicle given, as Finance Guy points out, the bank is taking the risk on the value of the vehicle.

      • Thanks, DJeneral. Now, it makes more sense. That MF calculation or interest rate just don’t look right with the monthly payment. I’d completely dismissed the MF that car dealers want to simplify for buyers early on because what you can get from straight calculation as the dealership help you understood, you can reverse the process and get the same numbers. Then you’ll question why are some numbers get thrown in the calculation. It pays to do your homework at school, so you can look at the numbers and can sort of tell they don’t jive.

        Again, thank you DJeneral for the posting. Wouldn’t it be great if everyone knows the real and correct way to calculate their monthly payment and know exactly what the interest rate is.

    • You are borrowing the car from the bank. The bank bought the car from the dealer with cash and instead of lending you cash, it’s lending you the car. Think of the car as a cash lump sum at any point in time, equal to the depreciated value of the car. For more intuitive explanations and formula derivation, see my response to DJeneral below.

    • You can’t. that’s set by the bank. If the dealer is padding it, then you can talk them down to the base rate. other than that, you can only negotiate the price and addons.

    • G is exactly right; the MF/interest rate is set by the financing entity. Do keep in mind however that the effective interest rate as I’ve described above is effectively both the cost of the capital itself (traditional interest rate) as well as some hedge on the market value of the vehicle upon conclusion of the lease.

      This is why the residual and MF, typically, move in opposition. As residual goes up there is greater risk that the book value at the end of a lease is greater than the market value (i.e. what someone would pay for it on the open market). When this happens companies have to “write down” the asset and recognize any gap between book value and market value as a loss.

      So if a company realistically thinks the market value of a car will be 55% at the end of three years, but are offering 58% residual because they want to get them on the road, you may see a higher “effective interest rate” that in some portion builds in this anticipated financial loss.

  7. Hi G –
    Can you comment on the following:
    MBZ GLK 350
    MSRP $41995
    Residual $26606 @ 30 months
    Due @ Signing = $2184 = $534 1st payment + $1095 Aq Fee + $452 Fees and insurance + $104 upfront taxes
    Monthly payment = $534
    I think the MF is around 0.0014


    • Whats your sale price? seems slightly on the higher side. I think the Acq fee is lower for MBFS, I believe they marked it up a couple hundred. What insurance fees? What taxes? Is that the taxes on your driveoff?

  8. Hello,
    Would you please let me know how good (or bad) this sounds?

    Mercedes 2013 C250 Coupe
    MSRP $46,330
    Sale Price $43,900
    Money Factor .00259
    Residual 61% $28,261.30
    12,000miles/yr 42 months $539.54/month
    $3215.54 Total down (includes first month payment, $2,500 down payment and other fees)
    Sales Tax 6.25

    Supposedly they are going to give me some type of “tax credit” so I won’t be paying taxes? Never heard of that, how accurate does that sound?


    • I don’t think this deal is good. The MF is way too high. Also, what tax credit are you referring to? do you live in a state that charges sales tax on the entire sale price of the vehicle?

      • I live in Texas, but am not sure what tax credit he’s referring to. Does that sound legitimate not to have to pay taxes?

        Is there anything that can be done about the money factor? Who determines that?

        What makes this offer sound bad to you? Do you have any suggestions about what i should ask for to make this sound like a good deal?

        • In Texas, I have heard of tax credits. That is because you get charged taxes on the full sale price of the vehicle, not just the depreciated portion.

          Money factor can be negotiated if it’s higher than the base rate. But that is typically tied to your credit score, so they won’t approve you if you don’t qualify. But if you qualify and they are padding it, you can try talking them down. The bank determines it but the dealer is allow to pad it for profit. Another way to lower it beyond the base rate is to put Multiple Security Deposits. However, not all banks offer this.

          The offer is bad for two reasons, MF is too high (probably padded) and your sale price is not as low enough to be considered a great deal. However, keep in mind that this car may not sell for any less, so this may be a situation where the lease just isn’t a good lease no matter what.

  9. Could you please tell me what a lease payment should be on the following for a 2012 civic coupe lx. The dealer seems to be quoting $30 over what it should be.

    Price including destination = $16995
    Taxes/title/fees bring this up to a total of = $18497
    Down = $0 – roll all fees and taxes into monthly payment

    MSRP = $19395
    Residual = 57% = $11055.15
    Money factor = .00067

    12 miles/yr, 36 month lease

    What would be the monthly payment and how do the numbers sound in terms of a good deal?

    • E, the deal is pretty good on paper. What is the monthly payment being quoted? I’m getting about $227 + tax, nothing due at signing (give or take a few bucks).

  10. So is the residual value based on the MSRP or the Capitalized Cost AKA Sale Price?
    I’ve been seeing a lot of dealers using the MSRP, can you clarify please?

  11. Hey G, Is there anyway I can calculate or find information online about what my car will be worth at the end of my three year lease? I realize the manufacture set’s the residual, but how do I know it’s in line with the the market holds three years from now?

    Thank you,


    • you aren’t asking me to predict the future, are you? LOL I kid. Typically, i recommend folks to look at what 3 yr old GLIs are going for to get an idea. I don’t know of a formula to project resale value 3 yrs down the road. I mean, banks do the best they can and they sometimes get it wrong.

      • I don’t think they made GLI’s for 2010, It’s going to be a difficult using KKB.coom or Edmunds to determine the residual. I’ve been told selling it would be $18k,

        Let’s say the bank is wrong and say my car is worth 13k at the end of three years. Assuming the payoff if $15k, have you heard of banks reducing the residual for refinance on a lease?

  12. Dealer Lease: Audi Q5
    MSRP $40,495
    $500.00 sec dep
    $695.00 aqusition fee
    $1,999 down payment
    Total $3,693 (excludes tax,title dealer fees other options)
    $499.00 per month excludes tax lic. etc
    10,000 miles per year
    36 mo lease…purchase option $23,487
    I found another car MSRP $39,470
    I want to offer 35,395
    36 months
    12,000 miles
    fine with the down
    Where should my payment be ? with a .00159 factor? Got that off your 2013 audi lease rates and 55%

    • Sue, Nov rates should be different. Unfortunately, I don’t have them this month. However, using last month’s rates, this is what I am looking at:

      MSRP 39470
      Sale 35395 (assuming the dealer takes your offer)
      RES 58% (56% for 15k, +2% for 12k)
      MF 0.00159
      Monthly $440 + tax (with all fees + 1st month payment due at signing)

      Realistically, I don’t think you will get over 10% off MSRP. TrueCar’s last month sales show 6.3% off MSRP at most. That means your payments will be in the low-mid $500s after taxes.

  13. Hey G, hoping you can help me out.

    I’m in the middle of negotiating a lease on a Cadillac SRX, and I can’t seem to meet the dealer on numbers.

    We have agreed upon the following:
    MSRP 43555
    Sale Price 41824
    Rebate of 3900
    Residual 58%
    MF .00112
    Tax 6%
    Again, these are items we have agreed upon
    He is saying the monthly will be $487
    I’m saying $448
    I will also pay $1000 at signing to cover doc fees, acquisition etc.

    Is there something I’m not getting here, I’ve showed him my numbers and asked him to show me how he’s getting his. He has basically said come in and I’ll show you on the computer, but has not emailed or called me with how he is getting his numbers.

    So, is there something I’m missing here?

    • Nick, i think the math is pretty straight-forward and your calculation should only be a few bucks off (I’m usually within about $5 on my estimates). You and your dealer are $1300 apart on your estimates (I am getting the same number as you). Which typically is around what you pay for inception fees (maybe a bit more). Anyway, if you are paying an additional $1000 and you are still $1300 apart, then there are fees that are unaccounted for PLUS the way the rebate is being used may not be a straight dollar for dollar deduction of the sale price. I think it might have been taxed, which typically means your deduction isn’t as big as the $3900. Anyway, you need to get an itemized list of fees you are paying before you even show up at the dealership. If your dealer knows what he’s doing then that shouldn’t be a problem.

  14. Hey G,
    Thanks for the info.
    I do have a fee list of:
    $740 Acquisition fee
    $190 doc fee
    $23 state fee
    With $1000 due at signing, these fees are covered and we are still off the $1300 or so you said.
    I was playing with the numbers a little to see how i get to his $487, and interestingly enough, if I enter a rebate of $2600 instead of $3900 hundred, which would be the dealership keeping 1/3 of the rebates, I land within $1 of his number. So I’m pretty sure this is what he’s doing and why they won’t send me exact numbers ahead of time.
    I think I have a couple options here:
    Try another dealership
    Tell him I want to do a $3900 cap cost reduction and receive the rebates directly to me and see what he says.
    Thanks again for your help, I appreciate having someone else look over numbers and make sure i’m not making a mistake somewhere.

  15. Hey G,
    Got a call back from the dealership, they’ll go $451 a month including 6% sales tax, with $1,000 due at signing.
    Personally I’m happy with this deal and I’m going to jump at it.
    Thanks for your help.

  16. 12/02 Hi G. I need your help. I find a lease ad
    *Accord 2013 LX 4Dr Sedan, $0 Drive-off, 36 months, 12000 mile/year, $229 per month plus security deposit $300(refundable), acquisition fee $595, tax, title and license fee.
    *If including the acquisition fee $595/36=$16.5, the monthly payment before tax is $229+$16.5=$245.5
    *I find out the MSRP=$23270. Suppose residual ratio=63%, RV=23270×63%=$14666
    Monthly Depreciation Charge=(23270-14666)/36=$239
    Suppose money factor=0.001 Monthly Finance Charge=(23270+14666)x0.001=37936X0.001=$37.9
    My calculation, monthly payment before tax=$239+$37.9=$$276.9
    *Please review my case ASAP. 1. Is my calculation correct? 2. It it is, I think it is a deal and want to lease the car ASAP.


    • David…2013 LX RV is 63% @ 12k, with a MF of 0.00155. By the way, i don’t see the assumed sale price on the vehicle in your calculation. Per my calculations, this is what I am seeing…
      MSRP – 23270
      Sale – 21703 (includes $595 bank fee)
      Monthly – 253
      If we roll in your 1st month and dmv reg (around $600), we’d be looking at $269 plus tax for $0 drive-off lease.

  17. I don’t see a single number for Jeeps. I’m looking at a Jeep Grand Cherokee. Got any numbers on those models?

    And, if I were a little upside down on my current car on a trade, how does that get factor into a lease scenario? I think I could sell it privately pretty easily but depending on the trade offer, it might be worth trading. In NC, the tax due is reduced by the value of the trade. How should I account for that in your calculator? (It works out to about $1000 in tax I’d be saving, hence the willingness to take a little loss on a trade.)

    • sorry sammy. i haven’t gotten Jeep numbers in ages. the only thing I can tell you right now is that the lease rate on the Jeep GC Laredo is 1.01% My buddy picked one up in Nov. I did look into the Dodge Durango Crew and it had a 43% residual, 1.02% rate (divide by 2400 = 0.000425), plus $2250 lease cash. I think the GC will have less lease cash and a higher residual…probably around 49%-50%. Sorry, I wish I had more info for you but I don’t get much Jeep info nowadays.

      For your tax calculation, if your state doesn’t charge it as an “use tax” calculate it separately. Just set the tax at 0%. Taxes don’t affect that rating system.

  18. OK so I just Got Back from the dealer with my new 2012 M37x with premium andtech package.

    Msrp 57445

    sale price 46888
    (above includes loyalty dealer cash and sandy discount)

    MF .0078
    residual 52% 29871

    $520 /Month

    How’d I do? ok?

    • Brian…One of the best deals I’ve seen in a long time. You did a fantastic job! Congrats on the new car!

    • Infiniti did great lease deals in December. I leased a 2013 M37 with Premium Package for $0 down and $476.39/mo plus tax.

  19. Please clear this for me. If I want to find the vehicle price aft residual value, how would I find this?

    3 years
    Cap cost $23,000
    Residual value 60%

    $23,000 x 60% = $13,800
    $23,000 – $13,800 = $9,200

    Is $9,200 the cost of the vehicle after 3 years lease?

    • The residual is the value/price of the vehicle at the end of the lease.

      To calculate this figure you take the residual percentage (60% in your case) and multiply it by the MSRP (not the cap cost).

      The depreciation you pay as part of your lease is the difference between your cap cost and this calculated residual value.

  20. Good Morning G,

    I’ve been considering going the lease route as (1) I never keep a car longer than a few years and (2) I drive less than 10,000-miles/year.

    I have a question regarding taxes and it will likely be state specific; I live in Maryland (MD):

    Am I required to pay Sales Tax on the entire Capitalized Cost (negotiated selling price) or the Lease Purchase Value (value used to calculate monthly depreciation)?

    As a simple/quick example (ignoring down payment, trade-in, fees, etc.):

    MSRP – $40,000
    Cap Cost – $36,000
    Residual Percentage – 57%
    Residual Value based off MSRP – $22,800
    Leave Purchase Value (Cap Cost – Residual value) – $13,200

    So, using this example, am I paying my 6% on $36,000 or $13,200?

    I am further confused because in your Lease Formula Example you apply the 8.25% tax only to the Depreciation Charge (Lease Purchase Value).

    If you re-work your example and apply the 8.25% interest rate to the Cap Cost (negotiated selling price) the final lease value works out to be $454 — $1 higher than the number the dealer quoted you on.

    $32,196 * 1.0825 = $34,852
    $34,825 – $22,185 = $12,667
    $12,667 / 36 = $352
    $352 + $102 = $454

    To further complicate the formula — at least in MD, how are taxes handled with a sizable trade-in value? In Maryland we do not pay tax on any trade-in amount, even if it results in negative equity.

    So, back to my example, if I were purchasing my taxes would look like this:

    MSRP – $40,000
    Cap Cost – $36,000
    Trade – $20,000
    Taxable Amount – $16,000

    How would this $20,000 trade value be captured/handled –in regards to taxes– in my lease calculations?


    • Based on my understanding you only pay tax on the portion of the vehicle you are leasing (i.e. renting). As such you only pay tax on the difference between the negotiated cap cost and the residual value.

      Do keep in mind, however that you also pay tax on the finance fees charged by the dealer.

  21. Hi G – was able to negotiate the below at Tier 2 Credit.. not sure of the details MF residual etc..

    2013 G37x Premium w/Nav
    39 mos 15.000/year
    $1,800 TOTAL out of pocket
    4 remaining payments wiped off ($405)

    What do you think? Could do better?


    • 2013 G37X Sedan with Premium Package plus Mats, Kick Plates and some other insignificant stuff.
      Window sticker 38125
      Sale price 35023
      sale price includes 700 interception, 165 doc fee, 1240 three remaining payments from previous lease and some others small miscellaneous fees.
      Residual 22875 (60%)
      MF .00076
      Term 39 months
      Miles 15000/year
      Money down 550 including first month payment of 375, drive off sticker, tax on loyalty rebate and who knows what else.
      RWG Deal Rating 83.2

      • Wow I will need to recalculate that Jacek, but with $550 at signing and $375 a month, 83.2 RWG might a tad low. I think it should be in the 90s.
        Anyway, been thinking about my next car lately. 2013 G37 might not be a bad idea.

  22. 2013 Buick Enclave Premium package w/ nav.
    39month lease w/ 18000 miles per year
    had a trade in worth 16500, owed 9446.66
    net trade-in value 7053.34
    Gross Cap cost: 47936
    adjusted cap cost: 37744
    Rebates: 4030
    Residual value: 23654.30
    O money down at signing
    428.21 with tax included per month…1st month payment included in deal.
    Is this a good deal? It was the best price we got & we went for it.

    • Omh, I can’t really confirm how good the deal is because there is no MF. I also don’t know the your tax rate. If I had to make an educated guess, I think you did good, specially because you are getting a significant amount of miles on this lease.

  23. I don’t understand why RV is added to CC in calculating the finance charge. Aren’t we just borrowing the value of the car (CC)? In fact, since the value of the car is depreciating, it seems like we should use the depreciated value each month.

  24. Congrats G on being a Dad! Any thoughts on this offer for a 2013 BMW 328i xDrive equipped with premium, cold weather and technology packages?

    MSRP $47,975
    Sale Price $44,900
    Residual 64% ($30,704)
    MF .00120

    Acquisition Fee $925 (This is $200 over the standard $725 and he admitted it was for profit once I pointed it out. Gap insurance is included.)

    Disposition Fee $350 or waived if get another BMW

    Tax 6.35%

    10k/36 months $515.86/month including tax

    12k/36 months $529.42/month including tax (Residual decreases to 63%)

    KBB has invoice at 44,095 and “fair” price at 44,877. I can’t get Edmunds or True Car Value for some reason.

    • Rosie, TrueCar pricing nationally for the 328ix is about 7%-7.5% according to their site. That means you are maybe about $500-$700 above that. Now, I don’t always consider Truecar pricing to be the lowest since you can clearly see other people are getting 9%-10% off MSRP. I’d recommend shooting for that.

  25. Thoughts on this deal?

    2014 Audi S4 Premium Plus

    MSRP: 55,395 (plus changing wheels ($800) and Audi Care ($820)
    Selling Price: 52,000
    MF – 0.00132
    Residual – 54%
    $0 down
    Currently at $713/month, I offered $700/month

    Negative equity – $800
    Incentives – $1000 Audi Loyalty, 1st month payment paid.
    Total DE taxes – 700 after my trade-in tax credit
    I believe there’s another DE tax of 2.0% for leases or something

  26. Thanks so much. I am also considering a 2013 Mercedes C300 4Matic Sport with premium 1 and multimedia packages plus wood trim, palladium silver and almond MB Tex interior. The offer only got a 45 rating on your calculator, but it doesn’t seem that far off the great deal Daniel got on The Wall posting. The MF seems padded, but the residual seems high for 12k miles/year. Thoughts? (Hope you go some sleep last night!)

    MSRP $45,470
    SALE PRICE $40,300 (11.4% discount; I think they are including the 2K incentive others have spoken about. Do I ask for that in ADDITION to the 11%?)
    RV 0.7 ($31,829)
    MF .00143 (padded??)

    $443.35/month for 12,000 miles/27 months

    Due at signing: 2343.82 (fees + 1st month)
    Doc fee 499
    Acquisition 1095 (they padded 200)
    Registration 306.47


  27. OK – I’m sorry. I put the residual in the calculator at 0.7 instead of 70. It’s coming up with a score of 101 not 45! (for the mercedes C300 4Matic)

  28. great deal rosie, I am also in CT and considering MB for my next lease do you mind sharing which dealer you went to?

  29. Hi. I like your site. Really has made me a well informed consumer. I have a question about your RWG ratings. How exactly are they calculated? The reason I ask is that I live in Georgia and the tax on the ENTIRE vehicle must be paid up front. You can roll it into the net cap cost but then it makes the cap cost look terrible. The good part is that there is no longer a monthly tax added (and the horrible ad valorem tax is gone)
    Anyway, when I do this, your ratings become horrible. What should I make of this?
    thanks. Keep up the good work.

    • Excellent question Joe. All you have to do is not factor in the taxes as “fees rolled in”. The RWG doesn’t take into consideration taxes because it’s different in every city. However, when you roll that in as a fee, it will skew your results. My thinking was that the best way to do an “apples to apples” comparison was to ignore taxes all together. If you want to get a “fair” rating on the calculator, just set taxes to 0% and calculate your lease based on what you plan to borrow on the lease loan. Anything paid upfront (as long as is not cap reduction) should just be ignored.

  30. Hi G.!
    Do you have an Excel sheet, with the formula and the legend on where/how to find out each component to be entered in the formula, that you could publish on your web page?

    • I used to be folks were stealing my work and distributing it as their own so I put a stop to that. Sorry for any inconvenience. Is there something the current calculator doesn’t do that you wish it did?

  31. Q60S 6MT
    MSRP $47,155

    Cap cost 42,957.34
    Bank fee 700
    Cap cost reduction 1099.95 (1,000 loyalty)
    residual 59% 27,644.45
    Depreciation $382.38
    payment $415/month w/ WV tax included
    Pro rata 0.00
    Tax 66.00
    license fee 85.00
    gov fee 14.00
    advance payment 415.00
    total drive off 1,679-1000 loyalty=679.95
    rate 0.13 (They couldn’t tell me the money factor)
    term 39m/12k miles

    679.95 driveoff with 415/month 12k miles 39m

    Good deal?

  32. HEY! G I just leased my 2014 BMW 320i and my friend is the fleet manager at bmw nick alexander in Los Angeles. Please let me know if I got a good deal.

    (36month/12k Lease)

    MSRP $35,970
    Leased me the car at invoice $33,705
    Total Drive off $2,364 (Im assuming is my down payment)
    Money factor 0.0018
    Gross cap cost $33,705
    Cap cost reduction $1,395.23
    Adjusted cap cost $32,309.77
    Residual value $22,661.10
    Depreciation $9,648.67
    Rent charge $3,562.25

    Lease payment $366.97 + 33.03 (9% tax) = $400

    my credit score was 689

  33. Hello G,
    Regarding your calculator, how would one add sales tax on the full purchase price of a vehicle?
    In GA, you have to pay sales tax on the full price regardless of the length of the lease. So for example if the cap cost of the car is $40K, you have to pay 6.75% sales tax (GA) which is $2700 and if the lease is 36 months, that would equate to $75 per month added on to your monthly payment. Where is the provision in your calculator to add full sales tax amount?

    • Hi Kris,
      I would set the tax rate on the calculator to be 0% and manually add the taxes as part of the “fees rolled in” field.
      That should take care of it.


  34. Hello I would like to know if my deal is worth it. I have put the car on hold.

    MSRP: 67,200 2015 BMW X5 M sport package.
    sale price: 58,900
    residual value: 38,976
    down payment (i plan to keep the car): 12,000
    monthly payment: 552
    money factor: unknown as of right now.
    lease: 36 months
    taxable fees: 937.50
    NYC tax: 8.875%

  35. Look at any lease agreement and you will find that the cap reduction (down payment minus fees) includes your 1 month payment. This is fine except that they use that figure to determine your depreciation. They then take the depreciation and divide by months of your lease term.
    My question is:
    If your are paying the 1 month payment up front, how can they use that figure as part of the depreciation?

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