How lease payments actually work
A lease payment has two parts: depreciation (the difference between what you pay for the vehicle and its residual value, divided by the lease term) and finance charge (the sum of cap cost + residual × money factor). Sales tax is added on top, though treatment varies by state.
Getting a good lease deal
- Negotiate the selling price first, just like a purchase.
- Ask for the money factor and residual in writing. These come from the bank, not the dealer.
- Lower cap cost reduction doesn't always mean a bad deal — if the vehicle is totaled, any up-front cash is gone.