How to calculate the effective payment on a car lease

Dec16
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A common question among consumers who lease a car is how to calculate the true value of their car lease payments when a cash incentive or down payment has been applied. For example, when leasing a new car, or taking over a lease in a swap lease, the consumer may negotiate a monthly lease payment of $250 a month. But what would the monthly payments be if the consumer were able to apply a down payment on their lease? Better yet, what is you were taking over someones lease via a swap lease for the remainder of their lease term and you the lease seller offered a cash incentive of $1000 to take over the car lease? How would this impact your monthly car lease payments? This is what is referred to is the effective payment on a car lease, and I’ll show you a simple way how to calculate the effective payment.

Remember, the effective payment is essentially an upfront cash payment (cash incentive) or a down payment on a car lease is applied the total lease cost and monthly lease payments.

Calculate the Effective Payment on a Car Lease

To calculate the effective payment of a lease, lets walk through this example. Lets say your assuming or taking over a lease through a swap lease or a someone else’s lease. The monthly car lease payment is $500, and 20 months remain on the lease.

Now, lets say the individual seeking to get out of a car lease (lease seller) is offering a $2,000 cash incentive to you to take over their lease. Note, many consumers have their reasons to get out of a lease (financial issues, loss of job, buying a new home or new baby on the way and need the cash) so it’s not a bad thing to take over a lease. Actually, it can be a great opportunity for someone to take over another persons lease through a swap lease as the cash savings and other benefits can far outweigh a new lease. But I’ll cover that in another post.

So lets say the lease seller offers you $2,000 to take over their lease. Now take the $2,000 cash incentive and divide it by the remaining 20 months. $2,000/20 = $100 / month. The $100 is the cash incentive ‘per month’ you’ll receive. Now subtract the $100 from the original monthly payments of $500, and you get an effective payment of $400 per month ($500 – $100 = $400).

As you can see, calculating a car lease effective payment is quite easy. But now lets say instead the lease seller who wants to swap their lease is not offering a cash incentive to take over the lease, and you really want this vehicle, but still need to bring down the monthly lease payments. In a situation as this, you could arrange with the lease company to pay a down payment on the remainder of the lease. A down payment is similar to a cash incentive to bring down the monthly lease payments, but calculating the effective monthly payment is a little bit different.

Calculating the effective payment of a lease when a down payment is offered, lets run through this example.

To keep is simple, lets say your going to put a $2,000 down payment on the car lease instead of a $2,000 cash incentive as the previous example. With all things even, the monthly lease payment is $500 before any cash bonus or cash incentive is applied.

Now divide the $2,000 down payment by the remaining 20 months left on the lease to get the effective monthly payment of $100. Now, since this is a down payment (from your own pocket) instead of a cash incentive (from the lease sellers pocket), the effective payment is $600.

Remember, the effective payment is an approx. value. as  sales tax will vary from location to location.

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