One SUV lease, line by line
Load sample fills the worksheet with a 36-month lease on an SUV. MSRP is $38,400, negotiated down to $36,250. The residual is 58% and the money factor is 0.00210.
- Gross cap cost. $36,250 selling price plus the $650 acquisition fee, rolled in. $36,900.
- Cap cost reduction. $2,000 cash plus a $500 rebate. Adjusted cap cost drops to $34,400.
- Residual. 58% of the $38,400 MSRP, not of the selling price. $22,272.
- Depreciation fee. $34,400 minus $22,272 is $12,128, spread over 36 months. $336.89 a month.
- Rent charge. $34,400 plus $22,272, times 0.00210. $119.01 a month.
- Tax. 7.25% of the $455.90 base payment is $33.05. The payment lands at $488.95.
Step five looks wrong the first time you see it. The rent charge adds the cap cost and the residual instead of averaging them. The halving is already folded into the money factor, which is where the number 2,400 comes from.
Money factor times 2,400 is the APR
A money factor is a monthly rent rate on the average balance, (cap cost + residual) / 2. Turning an APR into one takes three steps. Divide by 12 for a monthly rate, by 2 to skip the averaging, and by 100 to drop the percent sign. 12 x 2 x 100 is 2,400.
| Money factor | APR | Rent on the sample, per month |
|---|---|---|
| 0.00125 | 3.00% | $70.84 |
| 0.00210 | 5.04% | $119.01 |
| 0.00250 | 6.00% | $141.68 |
| 0.00325 | 7.80% | $184.18 |
| 0.00417 | 10.01% | $236.32 |
Type into either box and the other fills in. The worksheet refuses a factor above 0.01, which is 24% APR. A number that high is nearly always an APR pasted into the wrong field.
Treat the 2,400 rule as a comparison tool. Lease rent does not compound the way loan interest does, so a 5.04% lease and a 5.04% loan do not cost the same over 36 months. The rule ranks two dealer quotes correctly. It does not restate a lease as a loan for your books.
Reading a dealer's $559
Suppose the dealer quotes $559 a month, tax included, on the same SUV. The quote box strips out the 7.25% tax, which leaves $521.21. Subtract the $336.89 depreciation fee and $184.32 of rent remains. Divide by $56,672 (cap cost plus residual) and out comes 0.00325, or 7.81% APR.
The sample was built on 0.00210. The difference is $70.05 a month, $2,521.80 over the lease.
Part of a gap like this is often a marked-up rate. Lenders let dealers add a margin to the base money factor and keep it. A gap this wide usually hides something else too: a paint sealant, a tire plan, or a selling price above the one you agreed to. Ask for the itemized worksheet and compare the gross cap cost first, since add-ons land there.
The box assumes the dealer used your price, residual, fees, and term. If the quote falls below the depreciation fee alone, those inputs differ, and the box says so instead of printing a negative rate.
Miles show up at turn-in, not in the payment
The sample allows 10,000 miles a year. The driver expects 12,500. Three years at 2,500 over is 7,500 extra miles, and at $0.25 a mile the turn-in bill is $1,875.
The monthly payment never shows this charge. Total lease cost does: $21,872.20 with the miles, $19,997.20 without. Most lessors also sell extra miles at signing for less than the turn-in rate. Ask for both prices before picking an allowance.
What $2,000 down buys you
Clear the cash down field. The payment rises to $553.03, and total cost goes up by $306.88. That figure is the rent and tax on $2,000 for three years, and it is the entire return on the down payment.
The risk sits on the other side. If the car is totaled or stolen in month five, gap coverage pays off the lessor and the $2,000 is gone. Many lease shoppers put down only the first payment and fees for this reason. Rebates work differently. They lower the cap cost without costing you cash, so take every one offered.
Lease or buy the same SUV
The second panel finances the $36,250 price plus 7.25% tax, less the same $2,500, at 6.9% for 60 months. The loan payment is $718.62. After 36 payments you still owe $16,066.43. Sell the car for its $22,272 residual, pay off the loan, and buying costs $21,664.75 over three years. The lease costs $19,997.20, so leasing wins by $1,667.55.
The figure to watch is the break-even resale: $23,939.55, about 62% of MSRP. If a three-year-old SUV like this one sells for more, buying wins. Check used listings for the same model, trim, and mileage before you trust either side of the comparison.
Two choices keep the panel fair. The mileage charge stays out, because extra miles cut the resale of an owned car as well. The acquisition and turn-in fees stay in, because a buyer never pays them. The panel also stops at the lease term. Keeping a car for eight or ten years is a different question, and the auto loan calculator answers it better.
What the worksheet leaves out
- Tax on cash down. Many states tax a cap cost reduction like a payment. Add that amount to due at signing by hand.
- Tax rules beyond three modes. Each payment, full price upfront, or none. Local surcharges and tax on fees are not modeled.
- Security deposits, one-pay leases, and buyout pricing at lease end.
- Early termination. Ending at month 20 costs far more than the depreciation left on the schedule, and every lessor computes the penalty its own way.
- UK contract hire. Those quotes use an initial rental of 3, 6, or 9 months, include VAT, and carry no money factor.
- Equipment leases with a $1 buyout. These work like loans. Run them through the amortization calculator.
- A residual you pick. Leasing companies fix the residual for each model and term. Typing a higher one lowers the payment on screen, never on the contract.