How to Calculate Finance Charges on a Leased Vehicle

At some point, you may want or need to have a new car. You may also want to weigh the cost differences between leasing and buying before you make your decision. One way to compare costs is to figure out exactly what you will be paying for each. When you buy a car, you finance the entire amount charged for the vehicle and the interest rate is clear; when you lease a car, you pay to use the vehicle for a period of time, similar to renting it, and turn it in at the end of the lease, but the finance charges may not always be clear. To calculate the finance charges on a leased vehicle, you need to know only a few things: net capitalized cost, residual value and money factor. If these are known, calculating your finance charges is a simple process.


  1. Image titled Calculate Finance Charges on a Leased Vehicle Step 1
    Calculate the net capitalized cost. The net capitalized cost (net cap cost) is the negotiated cost of the vehicle less any down payment, incentives or other deductions from the sticker price. For example, the vehicle costs $30,000 and you put $5,000 down for a net cap cost of $25,000.
  2. Image titled Calculate Finance Charges on a Leased Vehicle Step 2
    Know the residual value. The residual value is the cost of the vehicle after depreciation at the end of the lease agreement term. Dealers have books that will give this estimate. For this example, use $15,000 for your estimate.
  3. Image titled Calculate Finance Charges on a Leased Vehicle Step 3
    Determine the money factor. The money factor is a number used by the car dealer to calculate your finance charge, although it is not quite the same as interest. The money factor can vary depending on the dealer and the dealer is not required by law to disclose what it is in your paperwork; therefore, you should always ask for it before making a decision.
  4. Image titled Calculate Finance Charges on a Leased Vehicle Step 4
    Multiply the money factor by 2,400 to get the annual percentage rate (APR). This enables you to compare finance fees among dealers and determine whether the percentage rate is a fair deal for you. For example, a money factor of 0.00333 is equivalent to an 8-percent APR.
  5. Image titled Calculate Finance Charges on a Leased Vehicle Step 5
    Add together the net cap cost and the residual cost and multiply the sum by the money factor to determine the total finance fee. For example, ($25,000 + $15,000) x 0.00333 = $133.20, which is the finance fee.


  • If the lease dealership will not provide you with the money factor, go to a different dealer. You cannot determine and compare your true costs and fair value unless you have this information.
  • The higher the car value at lease end (that is, less depreciation), the less your finance charges will be, which, in turn, will reduce your monthly payment.


  • Some dealers may present the money factor number so that it is easier to read, such as 3.33; however, this could be misinterpreted as the interest rate. Be aware that this is not the rate that will be used. This number should be converted to the actual money factor by dividing by 1,000 (3.33 divided by 1,000 = 0.00333).
  • Be aware that the finance cost (as calculated here to be $133.20) is not necessarily your monthly payment. It is only the finance charge and may not include other charges such as sales tax or the acquisition fee.

Things You'll Need

  • Net cap cost
  • Residual cost
  • Money factor
  • Paper
  • Pen or pencil
  • Calculator

Article Info

Categories: Credit and Debt | Taxes and Fees