To Lease or not to Lease

Both buying and leasing have pros and cons, just like renting versus buying a home. The most obvious difference is that with a lease, you get a brand new car every few years and don’t have to deal with trading or selling your car later; just hand the keys over to the dealer and get a new lease. This may be why one out of every five new cars sold are leased.

So how do you decide between buying a new vehicle and leasing one? As both offer benefits, it is best to look at your individual needs. There are advantages to owning and to leasing.

Leasing Advantages:

  • Lower monthly payment and lower or no down payment
  • A newer vehicle often with the latest up-to-date technology, fuel efficiency and safety features.
  • Lower ownership costs, your vehicle is always under factory warranty.
  • Sales tax is paid only on the monthly payments (in most states), not the total cost of the vehicle.
  • Leasing lets you enjoy vehicles that might typically be out of your price range.
  • When your lease is over simply turn your vehicle in a pick another new car, truck or SUV. No trade in value so you have protection against market fluctuation.
  • If you have an accident that appears on the CarFax the vehicle may have a lower value at lease end and you will NOT be responsible for that. As long as you had the vehicle repaired then the lower value is the leasing company’s concern.
  • While Leasing is typically applicable to new vehicles you can now also lease some used Mercedes-Benz, Audi, BMW, Mini, Volvo, Honda & Land Rover models.
  • A leased vehicle is allowed to have “reasonable wear & tear”.

Buying Advantages:

  • Many available factory finance programs.
  • You do not necessarily need perfect credit.
  • Once you fulfill your financial obligation, the vehicle is yours, no more payments. You can continue to drive it or trade-in towards a newer vehicle.
  • You can sell your vehicle at any time.
  • No contracted mile limitations.
  • Make it your own. You can customize your vehicle whichever way you’d like.
  • Not all brands lease used vehicles but you can always buy one.


  • Expect insurance costs to be the same regardless.
  • Expect maintenance costs, for the term of the lease to be identical.

At Herb Chambers we would be happy to provide full transparency and show you both leasing AND financing numbers on the new vehicle you have selected.

Do you want to know how to calculate your monthly lease payment?

It’s pretty simple! All you need to calculate your lease is the price of the vehicle, the residual value, the money factor and the length of the lease.

Your monthly lease payment is calculated by adding up the following three items:

  • Depreciation
  • Interest
  • Tax

Lease Payment = Depreciation + Interest + Tax

Here are some of the terms you should be familiar with to calculate your lease:

Capitalized (Cap) Cost - Is the equivalent to the purchase price of the car on a conventional loan.

Capitalized (Cap) Cost Reduction - Payment made upfront to reduce monthly payments. Also known as a down payment.

Residual - The estimated amount the vehicle is worth at the end of the lease or the amount you can buy the car for at the end of the lease if you decide you want to purchase the car. Also known as the “Guaranteed Future Value.”

Depreciation - The amount the vehicle has lost in value during the lease.

Term of Lease -The number of months you will be leasing the vehicle (usually 24, 36 or 39 months).

Money Factor - The interest rate on the lease. This can be converted to the more familiar rate by multiplying the money factor by 2400.


Let’s assume you will be leasing a vehicle for 36 months and it has a MSRP of $30,000. Your Cap Cost reduction or down payment is $2,000 for a purchase price of $28,000. The money factor is .0030, and at the end of the lease term, the leasing company has predicted the residual value to be $15,800.

  • Capitalized (Cap) Cost - $28,000 (Purchase Price)
  • Residual Value - $15,800
  • Money Factor - .0030
  • Term - 36 Months

How does it calculate?

  • Depreciation - The depreciation cost is the most significant portion of your lease payment, and it's easy to calculate:

(Capitalized (Cap) Cost - Residual) ÷ Term of Lease

($28,000 - $15,800) ÷ 36 = $339

$339 is your monthly depreciation cost

  • Interest - The next part of the lease payment is interest

(Capitalized Cost + Residual Value) × Money Factor

($28,000 + $15,800) × .0030 = $131

$131 is your monthly interest payment

  • Taxes - The last part of your monthly lease payment is the tax. Here's the calculation:

(Monthly Depreciation Cost + Interest) × Local Sales Tax Rate (6.25% MA)

($339 + $131) × 6.25% = $29.38

$29.38 is your monthly tax payment

How does it all add up? Calculate your lease by adding all three factors that make up your lease payment to come up with the monthly lease payment:

$339 + $131 + $29.38 = $499.38 Monthly Lease Payment

Still have questions, stop by, call, or email any Herb Chambers dealership and we’ll provide you with the cash price, leasing and finance options for the vehicle that best suits you!

A Herb Chambers Company

Local Auto Finance Center Offering New Car Leases and Loans

Serving: Somerville, MA

Local Phone: (617) 666-8333

Directions to Herb Chambers Companies

259 McGrath Hwy 2nd floor, Somerville, MA 02143