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lose value over time. (If it’s any consolation, equipment leases, such as leases on a backhoe or a copier, involve interest too.) But the money factor is not exactly interest, because with a car lease, you’re paying for the depreciation of the value of the car.
    There will probably be other things to consider—such as dealer fees. Because those vary so much, we’ll leave them out of our calculations here. But you should research car leases in your area, and with each particular dealer and lender, before parking yourself on the other side of a car salesperson’s desk.
    Once you’ve agreed on a lease price for the car, the dealer will present you with a calculation of your monthly lease payment. But it’s important to know how to make this calculation yourself, so you can catch any errors the dealer might make (and to ask about any added extras you don’t understand and didn’t anticipate). Knowing exactly what is going on may also give you an edge in negotiations.
    Monthly lease payment = depreciation fee + finance fee + sales tax
     
    Instead of creating a really huge formula, it makes more sense to break this problem down into its three parts. You’ll just need to remember to add the three together at the end.
    Depreciation fee = (cap cost - residual value) / lease term
    Finance fee = (cap cost - residual value) • money factor
    Sales tax = monthly payment • sale tax rate
    Crystal is in the market for a new car. Multistep problems like these can blow her mind. But as a professional organizer, she lives by the adage “A place for everything and everything in its place.”
    Therefore, when she decided to lease her next vehicle—and to do some of the math before she waltzed into the showroom—she sat at her immaculate desk with a calculator, a printed description of the financing she thought she could get, and a stack of clean, crisp paper.
    At the top of one paper she wrote “Depreciation Fee” and then its formula. On the second she wrote “Finance Fee” and its formula. And on the third she wrote “Sales Tax” and its formula. Then she turned to the “Depreciation Fee” paper and ignored the others.
    To find the depreciation fee, she needs to know the cap cost, residual value, and lease term. In the language of math,
    D = ( c - r ) / t
     
    The last two values come from the research Crystal has done on financing. The car she wants has a 70% residual value over 3 years.
    Although she knows the sticker price and the residual value percent, Crystal doesn’t know the residual value yet. Because the residual value is a percent of the sticker price, she just needs to multiply.
    Residual value = sticker price • residual value percent
    Residual value = $36,890 • 0.70
    Residual value = $25,823
    Now she has the residual value and the term. She needs to know the cap cost (lease price) of the vehicle.
    Crystal, who is a great negotiator, thinks she could get the dealership down from a sticker price of $36,890 to $35,350. So, she writes two more figures on her paper:
    Sticker price = $36,890
    Cap cost (or lease price) = $35,350
    She circles three numbers on her page: The lease term (36 months), the cap cost ($35,350), and the residual value ($25,823). These are the numbers that she’ll use in her formula.
    Depreciation fee = (cap cost - residual value) / lease term, or
D = ( c - r ) / t
     
    She plugs her numbers in to get
    D = ($35,350 - $25,823) / 36
    She remembers that she needs to calculate what’s in the parentheses first:
    D = $9,527 / 36
    Then she arrives at
    D = $264.64
    She highlights the depreciation fee and sets this paper aside.
    Now Crystal can find the finance fee—or the amount she’ll pay the leasing company for financing the lease. She turns her attention to that paper, looking at the formula
    Finance fee = (cap cost - residual value ) • money factor, or
F = ( c - r ) • f
     
    She knows the cap cost is $35,350 and the residual value is $25,823. She looks over the research she’s