Leasing a car is typically easier on your wallet than buying.
But lessees are much more likely than buyers to be taken advantage of, for the simple reason that it's difficult to understand what you're paying for.
By law, auto loan contracts must disclose the amount being financed, the interest rate and the size of monthly payments. So it's relatively easy to see if you're being billed correctly.
But leasing companies only have to disclose monthly payments -- not how they are calculated. This formula doesn't appear anywhere on a lease contract.
As a result, most people can't check the math in their contract for simple errors or outright fraud.
This is unfortunate, because so many of the factors that go into the payment formula, such as the selling price of the vehicle and the value of any trade-ins or rebates, are negotiated between the buyer and the dealer. So you're taking the dealer's word that the correct figures were used.Al Hearn, president of LeaseGuide.com, says a lack of knowledge of how lease payments are calculated is one of the key reasons that consumers overpay.
Simply comparing the monthly payments you negotiated with the figure on a contract doesn't provide enough information, he says.
Monthly Lease Payment Formula
A lease payment is made up of three parts that are added together: a depreciation fee, a finance fee and a sales tax.
Depreciation fee: This compensates the leasing company for the value your car will lose over the term of the lease. You pay off an equal portion each month. To calculate it, you start with the selling price of the car, plus any fees and taxes, and subtract any rebates or trade-ins you may have. You also subtract the residual value, or what the car is expected to be worth at the end of the lease term. Then divide by the number of months.