Car Leasing Guide

A car lease is similar to a long-term rental. Instead of paying for the full price of the vehicle, you pay for the portion of the car’s value that you use during the lease term.

At the end of the lease, you usually return the car, buy it out, or lease another vehicle.

Your monthly lease payment is mainly based on:

• The selling price of the car
• The residual value
• The money factor
• Taxes and fees
• Incentives or rebates
• How much is due at signing

Money factor is the lease version of an interest rate. A lower money factor usually means a better lease deal.

Money Factor × 2400 = Approximate APR

Example: a money factor of 0.00150 is approximately equal to a 3.6% APR.

Residual value is what the lender estimates the car will be worth at the end of the lease.

A higher residual value usually lowers the lease payment because you are paying for less depreciation.

Example: if a $60,000 car has a 60% residual, the estimated lease-end value is $36,000.

Due at signing is the total amount paid when starting the lease. It may include first month’s payment, taxes, registration, fees, and sometimes a down payment.

A lower monthly payment with a large due-at-signing amount is not always the better deal. Always compare the Effective Payment.

Effective Payment helps compare deals with different upfront amounts.

Effective Payment = (Total Monthly Payments + Due at Signing) ÷ Lease Term

Example: $399/month for 36 months with $3,000 due at signing has an Effective Payment of about $482 (($399 × 36 + $3,000) ÷ 36).

• Loyalty credit
• Conquest credit
• Lease cash
• College graduate incentive
• Military incentive
• EV or clean vehicle incentives

Incentives may depend on location, credit approval, current vehicle ownership, brand eligibility, and lender rules.

• Only looking at monthly payment
• Ignoring the due-at-signing amount
• Putting too much money down
• Not checking mileage limits
• Forgetting broker, dealer, tax, and registration fees
• Assuming every incentive applies to everyone

• Strong discount off MSRP
• Low money factor
• High residual value
• Useful incentives
• Low due at signing
• Clear fees and terms

At lease-end you usually have three options: buy the car at its residual (payoff) value, return it and walk away, or trade it in toward something new.

Buying out isn't automatically the wrong move — if the car is worth more than the payoff amount, you have built-in equity. Returning has its own costs too: a disposition fee, and a per-mile charge for any miles over your allowance.