How to Read a Lease Worksheet Before You Sign

A lease payment looks like a quoted price — a number the dealer arrives at somewhere off-stage and brings back to the desk. It is not. It is two numbers added together, and United States federal law requires the lessor to show you both, along with every figure they were built from. Most people sign without reading that box, which is a shame, because it is the only part of the transaction where the arithmetic is entirely settled and the negotiation is entirely visible.

The payment is depreciation plus rent

Everything on the worksheet serves one of two purposes. Part of your payment covers the value the car loses while you have it. The rest is interest on the lessor's money.

adjusted cap cost = gross capitalized cost − cash and trade-in put down
depreciation      = adjusted cap cost − residual value

monthly payment   = depreciation ÷ term
                  + (adjusted cap cost + residual value) × money factor
                  + other monthly charges

The first line of that payment is straightforward: the car is worth less at the end than at the start, and you are paying for the difference, spread over the months. The second line is the part worth understanding, and we come back to it below.

What the law makes them print

Under the Consumer Leasing Act's Regulation M, 12 CFR § 1013.4(f), a motor-vehicle lease must disclose “a mathematical progression of how the scheduled periodic payment is derived” — and the regulation then names the lines it must contain:

• Gross capitalized cost — the agreed value of the vehicle, plus anything else being financed into the lease (taxes, fees, service contracts, an old loan balance).
• Capitalized cost reduction — cash down, trade-in credit, rebates.
• Adjusted capitalized cost — the first minus the second. This is the amount the payment is actually built on.
• Residual value — what the lessor says the car will be worth at the end of the term.
• Depreciation and any amortized amounts — adjusted cap cost minus residual.
• Rent charge — the interest.
• Total of base periodic payments, number of payments, and base periodic payment.
• Itemization of other charges and the total periodic payment.

Every one of those is a field you can ask about. If a worksheet is handed to you with a payment on it and none of these lines, you are being shown a quote rather than a disclosure, and the disclosure is the thing you have a right to.

Three numbers decide the payment

Of that list, three do nearly all the work: the adjusted capitalized cost, the residual value, and the money factor. Term and fees matter, but they are usually fixed by the program you are being offered. Here is the whole payment on a 36-month lease:

adjusted cap cost   $28,000
residual value      $17,500
money factor         .00354
term                 36 months

depreciation   ($28,000 − $17,500) ÷ 36        = $291.67
rent charge    ($28,000 + $17,500) × .00354    = $161.07
                                                 ────────
base monthly payment                             $452.74

The rent-charge line is not something we invented. The Federal Reserve Board's Keys to Vehicle Leasing states that to find the monthly rent charge, “the money factor is multiplied by the sum of the adjusted capitalized cost and the residual value,” and works the example .00354 × ($31,150) = $110.27. That exact case is pinned as a test in this site's math checks — if our arithmetic ever stops reproducing the Fed's figure, the build fails.

The money factor, and the 2400

A money factor is an interest rate wearing a disguise. Multiply it by 2400 and you have the equivalent APR:

money factor × 2400 = APR
        .00354 × 2400 = 8.5%

Why 2400 and not something more obvious? Because the money factor is defined as halfthe monthly interest rate. The lessor's stake in the car falls steadily from the adjusted cap cost down to the residual value, so on average over the term it is the midpoint of those two figures. Halving the rate and applying it to the sum rather than the average is the same calculation with the division moved — which is exactly why the formula multiplies by the sum. Run it back the other way: money factor × 2 × 12 × 100 = APR, which is the familiar 2400.

The Federal Reserve is explicit that the money factor “is not a lease rate and cannot be converted to a lease rate by moving the decimal point.” Which is precisely why you get quoted .00354 rather than 8.5 percent. Do the multiplication at the desk, out loud. If the resulting APR is well above what you would be offered on a loan for the same car, that gap is worth naming.

Where the negotiating room actually is

Of the three numbers that set the payment, one is genuinely yours to argue about and two mostly are not.

Capitalized cost is negotiable. It is the selling price of the car under another name. Negotiate it exactly as you would a purchase price, and settle it before anyone mentions a monthly payment — a lease negotiated on the payment can absorb a higher cap cost without the number on the page moving much at all, because a longer term or a bigger down payment will hide it.

Residual value is set by the lender, typically as a fixed percentage of MSRP for that model, term and mileage allowance. You cannot talk it up. You can, however, notice it: a high residual means a cheap lease and an expensive buyout, and a low residual means the reverse. It also silently tells you what the lender expects the car to be worth, which is a useful second opinion if you were planning to buy the same car and keep it.

Money factor is usually programmatic, tied to credit tier — but it is also the field most often marked up above the tier's buy rate. Asking directly whether the money factor has been marked up is a fair question, and the 2400 multiplication is what makes it an informed one.

Money down on a lease is not a discount

A capitalized cost reduction lowers the payment twice over: it shrinks the depreciation you are financing, and it shrinks the balance the rent charge is calculated on. Put $3,000 down on the lease above and the payment falls by $93.95 a month — $83.33 of depreciation and $10.62 of rent charge. Over 36 months that is $3,382.

So you put in $3,000 and got back $3,382. The extra $382 is rent charge you avoided — a genuine return, but a smaller one than the lease's 8.5 percent: about 4.25 percent a year on money tied up for three years. The reason is worth knowing. Your cash reduces the lessor's stake by $3,000 at the start and by nothing at the end, because the residual value is unchanged — so across the term it offsets an average of $1,500, and earns the lease rate on that rather than on the full amount. It is not, in any case, a discount on the car, and the arrangement carries a risk that a down payment on a purchase does not. If the car is stolen or totaled in month three, the insurance settlement goes to the lessor for the value of the vehicle. Your $3,000 is not a deposit, and there is no equity to refund it from. Gap coverage handles the difference between settlement and payoff; it does not hand back your cap cost reduction.

The lines that decide whether it was a good deal

Three costs are on the worksheet but not in the monthly payment, and they are where leases most often surprise people at the end.

The mileage allowance. Leases cap annual mileage and charge for every mile past it, commonly 15 to 30 cents. Drive 18,000 miles a year on a 12,000-mile allowance and a three-year lease ends 18,000 miles over — at 25 cents, $4,500 due at turn-in. Before signing, work out your real annual mileage rather than your intended one; if you do not know it, your last two odometer readings do.

The disposition fee. A few hundred dollars charged for handing the car back, disclosed up front and generally forgotten by the time it is due.

Wear and tear. Real, unpredictable, and assessed by someone whose employer benefits from the assessment. No calculator can price it. Knowing it is coming is most of the defence.

The lease payment will be lower. That is not the answer.

Compare a 36-month lease against a 60-month loan on the same car and the lease payment wins, essentially always. It has to: you are financing roughly ten thousand dollars of depreciation instead of the whole car. The comparison only means something when both sides are counted the same way, at the same moment in time — everything paid out, minus the value of what you still own.

At the end of the lease you own nothing. At the same month on a loan you still owe a balance, but you are holding a car, and the difference between what it would sell for and what you still owe is real money in the comparison. Sometimes it is negative — that is what being underwater means, and it is common enough on long loans that it has its own tool here, the Negative Equity Calculator.

This is also why the CFPB advises against shopping on the monthly payment at all: a lower payment stretched over more months costs more in total, and the payment is the one number every party at the desk can move without changing what you actually pay.

Take the worksheet home, or photograph it. Every field on it maps to a field on the Lease vs. Buy Calculator, using Regulation M's own names, so you can enter it line for line and see both paths priced over the same months. If you are financing instead, the Auto Loan Payment Calculator builds the loan side from the amount actually financed, and the Car Affordability Calculator works backward from what you can spend each month to the price it really buys.