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Calculating a lease payment is not difficult, once you have all the

information you need. The lease payment is based on the difference between

what you pay for the car and what the car will be worth at the end of the

lease, plus interest.

When it comes to leasing, here is the lingo:

Capitalized Cost - This is the selling price of the vehicle.

Capitalized Cost Reduction - This is simply a down payment.

Residual Value - This is what the car will be worth at the end of the lease

(usually stated as a percentage of the MSRP).

Money Factor - This is the interest rate. It is always give as a decimal

figure. While it is not necessary to know the actual percentage rate when

calculating the lease, you can figure it out by multiplying the money factor *

2400. This number is used no matter what the term of the lease. For example, a

money factor of .0025 would be an interest rate of 6%.

Inception Money (or Get In Money) - This is the amount of money that you have

to come up with at the start of the lease (not including any Capitalized Cost

Reduction). The inception money usually consists of the first month's payment,

a security deposit (usually equal to one month's payment rounded to the

nearest $25 and a bank fee. It can also include the dealer documentation fee,

tags and sales tax on the any Capitalized Cost Reduction (more on that later.)

It is important to have all of these costs broken down so you know exactly

what is being covered.

Now, here is how we calculate a lease. First off, you need to have several

things: the MSRP (or sticker price), the selling price (Capitalized Cost), the

residual value (as a percentage) and the money factor.

Let's use the GTI 1.8T as an example. Adding in the 17" wheels, luxury and

leather packages, it will have an MSRP of $22,000. The residual value for a

36-month lease (with 15K miles/year) is 57%. Usually a 12K mile/year lease

will have a residual value 2% higher (or 59% in this case). The money factor

for 36 months is .00250. Now that we have our figures, we can calculate the

lease. This may seem complicated, but take it step by step and it is quite

easy.

First we calculate the lease cost. Take the MSRP ($22,000) and multiply it by

the residual value (59%). This gives us $12,980. Now, take the Capitalized

Cost (what you pay for the car) and subtract the residual value from it. Let's

say we pay $21,500 for this car. $21,500 - $12,980 = $8520. Now, we take that

$8520 and divide it by the lease term of 36 months. $8520 / 36 = $236.67.

If you didn't have to pay any interest, this is what your monthly payment

would be . Unfortunately, few banks lend money without charging interest . To

figure out the monthly interest you take the sales price ($21,500) and add it

to the residual value ($12,980) and multiply it by the money factor (.0025).

$21,500 + $12,980 = $34,480. $34,480 * .0025 = $86.20. So, you are paying

$86.20/month in interest. You add that to the monthly lease cost of $236.67

and you end up with a monthly payment of $322.87. But wait, there's more. Your

state needs to collect their part of the deal in the form of sales tax. If

your sales tax is 8.25%, you would multiply the monthly payment by 1.0825 for

a grand total of $349.51. This is your monthly payment.

Now, what about putting more money down in the form of a capitalized cost

reduction. You would simply deduct this amount from the capitalized cost

before you run the numbers. For example, if you put $1,000 down, your monthly

payment would drop to $316.73. Now you are probably asking yourself, why not

put more money down? First off, you have to pay your 8.25% sales tax on that

$1000. But that is no big deal. The bigger problem is that if the car ever

gets stolen or totaled, the insurance will pay off your lease, but you will

never see that $1,000 again since it was paid up front. Also, think of it this

way. If you were leasing an apartment and the rent was $750/mo, but the

landlord said, "Give me an extra couple of thousand up front and I will lower

the rent to $650/mo." Few of us would actually do that. Leasing your car is

just like renting. If you can't afford the payment without putting more money

down, I would suggest taking the money you would put down and put it in the

bank to earn interest and then deduct an amount every month to cover the

difference.

One more bit of advice. Never lease a car for a longer term than the

manufacturer's warranty. If you do and something breaks past the warranty

period, it will be your responsibility to get it fixed and pay for it

yourself. Since you will give the car back at the end of the lease, you are

basically paying to fix someone else's car. So while generally longer lease

terms will give you lower payments, don't lease past the warranty period.

Also, don't lease longer than you will think you will want your car. Breaking

a lease early can be very expensive.

Updated Lease/Loan/Balloon calculator added (thanks GTakacs).

*Modified by VeeDubDriver at 6:02 PM 8-28-2003*