A lease is not that complicated to calculate. ( It consists of two components: A finance fee and a depreciation fee. You add them together to get the lease payment.

The finance fee is the Price of the car, plus the residual value, multiplied by the money factor.

The depreciation fee is the Price of the car, minus the residual value, divided by the months in the lease term.

So, first you calculate the residual amount, which is the MSRP of the car multiplied by the residual percentage. Say the car has an MSRP of $40,000 and a residual percentage of 70% for the lease you want (let's assume you want a 12,000 mile 36 month lease and that the residual percentage for that lease on this particular car is 70%). The residual value is: 40,000 X .7 = $28,000.

Finance Fee:

Now take the price you paid (or are going to pay) for the car. Say $38,000. Add that to the residual value of $28,000 and then multiply that sum by the money factor, say in this case it's .00225. You get a finance fee of: (38,000 + 28,000) X .00225 = $148.50.

Depreciation Fee:

Now take the price you paid ($38,000) and subtract the residual ($28,000) and then divide by the term of 36 months. You get $277.77.

Add the depreciation fee and the finance fee for your lease payment: $426.27

If you study the formulas a bit you learn several things:

1. If you want a low lease payment, you want to lease a car that has a high residual value AND a very small money factor. PLUS, you need to negotiate something off the MSRP.

2. You cannot possibly negotiate the best lease price unless you understand #1.

3. Your best deals will come from the finance company of the mark of the car. Only GMAC or Saab Scania Financial is going to be interested in giving you a very low money factor to lease one of their cars. Last month, for example, Mercedes Benz had a money factor of .00080 for an 2008 E-350 4Matic on a 33 month lease. That works out to an interest rate of 1.92%. (.0008 X 2400 = 1.92). From the finance arm for Infinity, you could get a 2008 Infinity FX35 for a money factor of .00014. That's a third of a percent!

4. Marks that hold their value will be cheaper to lease. A high residual value means you are going to pay for a smaller percentage of the car. If the car has a horrible residual, such as a Jaguar with a typical residual value of around 48% on a three year 12K mile lease, you will end up with a monster depreciation fee.

5. If you think you will buy the car at the end of the lease, then lease it at the lowest money factor you can for as long as you can. If you can chew up 52% of the car's cost at 1.92%... go for it. I guarantee that when the lease is up, and you seek to finance the remaining 48%, you are not going to get a rate even remotely close to the rate that was built into your lease.

I hope this helps.

Cameron