Guide to Lease Payments, Lease Calculations and ALG Residual Values

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Real World Lease Examples and Calculations

Last Modified: April 24, 2015 by Jeff Ostroff

Cap Cost Is Important

Don’t let the dealer tell you not to worry about the cap cost because it doesn’t affect you. It does! It makes a difference in your payments. They keep quoting monthly payments as a distraction. Pay attention to the value of the entire deal.

How Your Monthly Lease Payment is Calculated

There are 3 components:

  1. Monthly Depreciation Fee = ( Net Cap Cost – Residual ) Lease Term
  2. Monthly Finance Charge = ( Net Cap Cost + Residual ) x Money Factor
  3. Sales Tax (Depreciation Fee + Finance Fee) x Tax Rate

In states like Illinois, Texas and a few others, they tax you according to the gross cap cost up front. This is very unfair because you are only using about 50% equity then returning the vehicle.


Assume you lease a car for 36 months, with an adjusted cap cost of $35,000. They give you a residual of 54% after 36 months ($18,900). You can verify this too if you have the ALG Lease Residual Value Software. They disclose the money factor is .00333 (equivalent to 8% APR).

  1. Monthly Depreciation Fee = ( $35,000 – $18,900 ) 36 = $447.22
  2. Monthly Finance Charge = ( $35,000 + $18,900 ) x .00333 = $179.49
  3. Sales Tax = ($447.22 + $179.49) x .06 (Florida Tax is 6%) = $37.60

Total Monthly Payment = $447.22 + $179.49 + $37.60 = $664.31

Over 36 months it will cost you $23,915. If you buy the car at the end at its $18,900 residual value, your total cost would be $42,815 + up front fees (bank fee, dealer service fee, security, etc.) Buying is usually cheaper in the long run. If you had bought the car with 8% APR over the same 3 years your monthly payments would be $1,162.57, but your total cost is only $41,852.84.

Lease Calculator Spreadsheet Download

I created an Excel spreadsheet to calculate your lease payments (click here to download it ). I based it on the FTC’s Regulation M Model Lease form with several enhancements. I highly suggest that you download it and get practice with it on an old lease or some of the examples on this page. The enhancements I made are the inclusion of the money factor and lines for other closing costs like dealer acquisition. It will show you how much the entire lease will cost you. This is what dealers never tell you. The instructions are on the Instructions tab. Even better than this spreadsheet though, is the Expert Lease Pro Software that has the ALG Residual Values built right into it. You will need this software to accurately calculate Ford leases which are slightly different due to their hidden money factors which makes my spreadsheet off for them.

You’ll notice in the spreadsheet I made no cell for you to enter MSRP. You never want to see MSRP listed on the lease because you want a negotiated cap cost that is less than MSRP. The only thing MSRP is used for is calculating the residual value but the spreadsheet just allows you to enter the calculated residual value.

Real World Example #1

Here’s one from a visitor who emailed me to say how they got scammed. Before going in, the buyer researched all the prices and calculated the numbers in the table below. The dealer also calculated the numbers and showed them a lower monthly payment. Good deal right? Wrong! Examine the costs in the table:

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