Lease 101

Calculating Depreciation

Depreciation = (Net Capitalized Cost - Residual) ÷ Term

The Net Capitalized Cost is the total cost of your vehicle after negotiation with the dealer. Be sure you are calculating this cost versus the original price of the vehicle.

To factor in your Residual you will have to know what residual price your leasing company will set on the vehicle. The Term is set by you and can range from 24 – 72 months depending on your preferences. Let's look at an example:

Factors Results

Net Capitalized Cost $25,000
Residual $15,000
Term 36 Months
Total Depreciation $10,000
Depreciation ÷ Term $277.77
Monthly Depreciation $277.77

As long as you know the Net Capitalized Cost, Residual and Term, you can calculate your depreciation very easily.

Please note that when you extend your term to 48, 60, or 72 months (or whatever term you set with your leasing company) your Residual amount will change, which affects your monthly depreciation. Because a car tends to depreciate at a slower rate after a few years, your residual amount will not drop as far, and therefore your depreciation will not be quite as great for the entire term of the lease. (Translation: Your payment will be lower in a longer-term lease.)

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