Leasing a car can be an attractive option for many drivers, offering lower monthly payments and the ability to drive a new vehicle every few years. The flexibility offers drivers the reliability of a new vehicle without tying them down with the obligation of ownership. However, calculating the cost of leasing a car can be confusing, especially if you’re unfamiliar with the terminology. In this blog, we’ll break down the key components of lease payments and explain what they mean, so you can confidently understand what is involved with calculating your lease payment. 

Key Terms in Lease Payments 

When leasing a vehicle, understanding the terminology involved is crucial for making an informed decision. The cost of leasing a car is based on several key factors, each of which plays a role in determining your monthly cost. Whether you’re a first-time lessee or someone looking to refresh your knowledge, familiarizing yourself with these terms can help you confidently navigate the leasing process. Let’s break down the most important terms you need to know when calculating lease payments. 

MSRP (Manufacturer’s Suggested Retail Price)

Sometimes referred to as the sticker price, this is the retail price suggested by the manufacturer. Although this is the advertised price, it not necessarily the price you’ll pay. Dealer incentives, trade-ins, and shrewd negotiation often result in a discounted price. 

Negotiated Selling Price

After intense negotiation with the dealership, lessees can find themselves facing a more attractive price point. Leasing through an auto broker significantly reduces the headache of this step, and it often results in the best possible price point. This is the starting point for your lease calculation. 

Lease Term

The duration of the lease, typically expressed in months. The most common term length is 36 months, or three years; however, leases can be as short as 24 month or as long as 60 months. Longer terms typically result in lower monthly prices but at the cost of lower residual value. 

Down Payment

The upfront payment made at the start of the lease. Although you do not typically need a down payment to lease a car, putting money down will reduce your monthly payments.  

Residual Value

The estimated value of the car at the end of the lease term and a critical factor in determining your monthly payment. When searching for a car to lease, it is ideal to find one with the highest residual value. Certain cars have a higher resale value, which makes them prime options for leasing. The expert auto brokers at Centennial Leasing & Sales can help match you with the best cars to lease.  

Money Factor

Essentially the interest rate for your lease. It’s often presented as a small decimal (e.g., 0.00297) but can be converted to an APR by multiplying by 2,400.  

Acquisition Fee

A fee the leasing company charges to set up the lease. This might be $600, depending on the lease terms. The fee covers the costs of initiating the lease, such as running a credit check, verifying the lessee’s information, and other administrative expenditures. 

Using Online Car Lease Payment Calculators 

Online lease payment calculators can be useful for getting an estimate of your monthly payments. However, they should not be relied upon for an exact prediction. Each calculator uses a different formula to estimate your payment, and these variations will leave you with different results.  

As an experiment, we input the same data for a 2024 Subaru Crosstrek into five separate calculators and obtained five unique results. The calculations were performed on June 28, 2024. 

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Cost Variances from Different Calculators

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