Whether you just got your drivers license and are looking for your first car, or you're on the hunt for your next car, you might question if leasing a vehicle is right for you. Knowing the amount you will owe each month on an auto lease agreement is essential before you sign a new lease. If you don’t know this information, you may inadvertently sign up for a financial obligation you can’t manage. Using an auto lease calculator can be very helpful in ensuring you can afford your new car.
What is a Lease?
An auto lease gives you the right to drive a car owned by the leasing company, or lessor, for a specified time and for an agreed monthly payment. The lessee (you) may also have the option to purchase the car at the end of the lease, but this usually increases the monthly payments.
How Auto Leases are Calculated
Several factors go into calculating an auto lease, and most auto lease calculators will ask you to input this information to give you an accurate quote. You can enter approximate values to get a ballpark figure, or you can talk to an auto lessor agent at a car dealership for specific details regarding the car you want to lease.
Here's what you will need to know to use a lease calculator:
Value of the vehicle: Also known as the capitalized cost or Manufacturer's Suggested Retail Price (MSRP). You can negotiate this value in the same way as when buying a new car.
Down payment: The amount of money you pay upfront, at the beginning of the lease.
Lease term: Typical auto leases are for one to four years.
Money factor: This refers to a type of interest rate used in auto leases which involves consideration of the lessee's credit score.
Residual value: Also known as the lease end value, this is the expected value of the vehicle at the end of the lease period. Residual values are usually set by the financial institution involved and not by the car dealer.
Trade ins: If you are trading in another car, you need to enter its value into the calculator as well.
When you enter this information into an auto lease calculator, it tells you the expected monthly payments for that lease agreement.
Additional Costs of Leasing
Auto leases also often come with additional charges on top of the monthly payment. These charges are due at the end of the lease term and include fees for driving over a mileage cap, damage beyond normal wear-and-tear, and penalties for not servicing the vehicle according to the maintenance schedule set out in the lease.
You won't see these costs accounted for when you use an auto lease calculator. However, you can avoid these extra charges by understanding the requirements of the lease and following the rules set out in the lease agreement. Taking good care of the car, both inside and out, will help prevent unexpected fees.
When to Use an Auto Lease Calculator
Any time you are thinking about leasing a car, go online to use one of the many free auto lease calculators available. These simple tools can help you judge the relative affordability of your options. Just remember that the actual payments you need to make on a lease are determined by the agreement itself, and not the online calculator estimate.