1. What is the Lease Interest Equation?

The lease interest equation calculates the total interest paid over the life of a lease. It takes into account the capitalized cost, residual value, money factor, and lease term to determine the total finance charges.

2. How Does the Calculator Work?

The calculator uses the lease interest equation:

Where:

• \( CC \) — Capitalized cost (vehicle price plus fees minus down payment)
• \( RV \) — Residual value (estimated value at lease end)
• \( MF \) — Money factor (lease equivalent of interest rate)
• \( T \) — Lease term in months

Explanation: The equation calculates interest by multiplying the sum of the vehicle's cost and residual value by the money factor and lease term.

3. Importance of Lease Interest Calculation

Details: Understanding total lease interest helps compare lease offers, budget for vehicle expenses, and make informed financial decisions about leasing versus buying.

4. Using the Calculator

Tips: Enter all values as positive numbers. Money factor is typically provided by the dealer (e.g., 0.00125). Term is usually 24, 36, or 48 months.

5. Frequently Asked Questions (FAQ)

Q1: How is money factor different from APR?
A: Money factor is the lease version of an interest rate. Multiply by 2400 to convert to approximate APR (e.g., 0.00125 MF ≈ 3% APR).

Q2: Why include residual value in the calculation?
A: Lease payments cover the vehicle's depreciation plus interest on the entire financed amount (cost + residual).

Q3: What's a good money factor?
A: Rates vary, but generally below 0.00200 (≈4.8% APR) is good for prime borrowers. Manufacturer-subsidized leases may have lower rates.

Q4: How can I reduce total lease interest?
A: Negotiate a lower money factor, shorter term, or higher residual value (lower mileage allowance).

Q5: Is this the only cost in a lease?
A: No, leases also have acquisition fees, disposition fees, and possibly security deposits and taxes.