Auto Financing Monthly Loan Rates

How are monthly lease rates determined? 

The monthly payments for a car lease are figured with a special formula because of the fact that you will be returning the vehicle after a certain point in time. There are several key numbers in determining how monthly lease rates are calculated.

The first important number for a car lease rate will be the residual value of the car – that is, how much it will be worth when the lease is over. Basically, instead of the purchase price for buying the car, you're buying the car for just a certain amount of time. Subtract the residual value from the new car price, and that's your base price for the lease. If a $30,000 car should be worth $20,000 in three years when the lease is up, you need to pay a base price of $10,000.

Once you have your sales price, add in the necessary title, registration, and other necessary fees, and then subtract any rebates or incentives for which you qualify. The sum of these numbers is the capitalized cost of the car lease. That's the amount that will need to be financed or paid with cash and trade-in value.

Car lease financing also takes into account the residual value of the vehicle to determine the lease fee. There's a basic formula that you can do with any calculator. Add together the new car price and the residual value, and multiply that number by your "money factor" (APR divided by 2400). For example, if your rate is 4.9%, your money factor is about .002. It sounds quirky at first, but what this does is figure out the appropriate amount you pay to cover the depreciation of the vehicle, with your finance rate in mind. 
 
There are other factors in the monthly payment of a car lease, including an allowance for miles and expected wear and tear. A flat acquisition fee is typically added to cover the paperwork and related costs.

The most important thing to consider regarding auto lease monthly payments is the overall amount you'll pay over the life of the lease, and the monthly rate you can afford to pay. There are many benefits to leasing, including potentially lower monthly payments compared to purchasing.

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