Car leasing is a popular way to drive a new vehicle with lower monthly payments than many loans. This guide explains how leasing works, the factors that determine your monthly lease payment, and how to use our free Car Lease Calculator to estimate your real cost before you sign anything.
A car lease is a long-term rental agreement where you pay to use a vehicle for a fixed term (typically 24–48 months). Instead of purchasing the car, you pay for the depreciation and financing during the lease period. At the end of the lease you usually return the car, buy it at the agreed residual price, or lease/finance a new vehicle.
A standard practical model splits the payment into:
Depreciation charge = (Capitalized Cost − Residual Value) ÷ Term
Finance charge = (Capitalized Cost + Residual Value) × Money Factor
Monthly Payment = Depreciation charge + Finance charge (+ tax if applicable)
You can compute this manually, but it’s much faster and less error-prone to use a calculator.
Try our Car Lease Calculator to instantly estimate monthly payments, total lease cost and the amortization breakdown.
Some leases are closed-end (you return the car and walk away if terms met), others are open-end (you may owe more if the car’s market value is below the residual). Know which contract you’re signing.