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How Much Does That Car Lease REALLY Cost?

Have you ever thought about leasing a car? It does get pretty tempting when you see  deals in the paper like this: $189 a month to lease a brand new 2015 Chevy Cruze for 36 months! But, is this really the amount that you will be paying to drive around this Cruze for the next three years? Many would lead you to believe this to be true, but it simply isn’t. So, the next question is, “How much does that car lease really cost?”

chevy cruzeCar Lease Costs

If you buy a car with cash, the deal is pretty straight forward. You pay X amount of dollars for this car that you and the dealer are staring at, and you immediately drive it off the lot. Case closed, deal done, plain and simple. With a car loan, things tend to get more complicated. You’ve got the amount down, the interest rate, the monthly payment, and the length of the terms (in other words, at what point you will actually own the vehicle free and clear). It’s complex, but most buyers get through it without too many questions. Surprisingly enough, leases tend to be even more complicated than purchasing a car with a loan. Many think that a lease is just about one monthly payment, but this is entirely false. Let’s dig into the complexity of the car lease.

The Down Payment – For many leases, you’ll have to pay an initial fee before driving the car off the lot. This is often referred to as “money down” or the down payment.

The Residual Value Percentage – For leases, the dealer tells you how much he expects the car to be worth once the lease is complete. This is done with the residual value percentage. If the car is currently worth $20,000 and the dealer figures that the car will be worth $12,000 in three years, then the residual value percentage for that car is 60%.

The Term of the Lease – The length of the lease is often referred to as the ‘term’. Typically, people lease a car with a 36 month term.

The Money Factor – The money factor is the amount that is added to the lease amount for your interest payment. To translate the money factor into a percent interest payment, you will need to multiply it by 2,400. For instance, if the money factor is 0.00125, the interest amount you are paying is 0.00125 x 2,400, or 3.0%.

The Base Monthly Payment – This amount is calculated by taking the current value of the car and subtracting the amount that the car will be worth after the length of the term (using the residual value percentage). If the difference is $8,000, this will then be divided in the number of months in the term. If it is 36 months, your base payment will be $8,000/36, or $222.

Let’s pause for a moment and take a look at an actual car lease offer – the Chevy Cruze that I mentioned early on in this article:

20141129 - chevy cruze lease

Based on what we discussed so far, do you think that this car can actually be leased for $189 a month? I desperately hope your answer is no. I almost guarantee that the $189 is the base price to lease this car. Here is what will happen when you lease this 2015 Chevy Cruze:

You will walk into the dealership with your $2,139, expecting to walk out with a brand new Cruze and monthly payments of $189 a month. Instead, they will tell you that the interest rate is 2.9%, so your monthly payment will be slightly higher. Something more like $214 a month (I calculated this using the money factor that we discussed above). This still doesn’t sound like that big of a deal to you, so you hand over the down payment and agree to pay the monthly amount. While you will probably drive out of there in your new car, the financial surprises likely won’t stop there.

The Costs of Leasing After the Purchase

When you are wondering what a car lease really costs, you can’t stop calculating when the car leaves the dealership. There are definitely more costs to be had.

Car Insurance – At this moment, I pay $50 a month for my car insurance because my car is cheap and would not be very costly to replace. But, if I went out and leased one of these Chevy Cruzes, the dealership would no doubt require me to carry full coverage on the car. Since the vehicle costs $20,000 or more, my monthly insurance would likely soar to approximately $180 a month!

Incidents – When the lease is over, you are obviously required to take the car back to the dealership and turn in your keys. After you leave the dealership, the car is sent away to be reviewed and if they find dings and scratches on the vehicle, you will be charged the amount that it costs to fix them. There will also be charges if the tires are misshapen, the check engine lights are on, the upholstery is stained, or if there are cracks in the windshield (among many other things of course). This can be a pretty raw deal because you are not even there to defend your position on the vehicle and the supposed damage that is found. The average incident fee can easily run your another $500.

Mileage Overage – With any lease comes a restriction on mileage. Most commonly, a lessee is only allowed to put 12,000 miles on their car each year. If you go over this allotment, you will need to pay an additional $0.10 per mile. If you happen to go over your allotment by 2,000 miles when you return the car, that is an additional $200. Again, this is not an uncommon thing to have happen, and will add on to your lease costs.

Disposition Fee – This is likely in the contract you signed, but you were never aware of it. When you return the car to the dealership there is a set fee that you are expected to pay, which is basically a service fee. The normal amount is $300.

Early Termination Fee – We will not factor this fee in our calculation, but let’s say that you wanted to exit your lease early (or rather, maybe you have to because of job loss or because of medical bills, etc.). What would you have to pay? It is not uncommon that you would need to pay what is left in the agreement. If you have one year left and your payments are $200, then you would owe $2,400 to get out of the lease. It’s a pretty crappy deal, but this is typically how it is written up in the contract.

So What is the Actual Cost Per Month?

Alright, so we finally got there: the actual cost of a lease per month. Is it $189 a month? Ha, far from it. Let’s tally it up.

Down Payment: $2,139

Monthly Payment: $214 a month for 36 months

Increase in Insurance: $130 a month for 36 months

Incidents: $500

Mileage Overage: $200

Disposition Fee: $300

Total Cost After 36 Months: $15,523

…and the actual cost per month…? Actual Cost Per Month = $431.19


Instead of paying $189 per month like the ad says, you will actually be paying $431 a month more than if you would have just kept driving your old car. That’s a lot of money to spend on a car each month! For me, it is most definitely not worth it. Did you have any idea what that car lease really cost? I didn’t, but I’m glad I know now! I’m pretty sure I’ll be steering clear from those leases in the future thank you very much.

What about you? Would you still consider a car lease even after knowing the real cost?

Money Save Money


My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.


  1. Yeah, people have to be very careful with this. We ran a very similar analysis on car leases (and PCP) in the UK and the results are identical. You are usually paying over twice what the leasing companies “advertise” as their rates.

    The only way round it is for everyone to do the maths for themselves on their deals rather than just listening to the salespeople!

    • I actually had no idea there were so many fees until I started doing the research! I doubt I will EVER be leasing a car in my lifetime.

  2. Eye opening! Extra costs factor into most financial decisions.
    How does that compare to purchasing the vehicle outright, with sales costs etc at the end?

    • I haven’t done the math recently, but knowing that dealerships earn the most money with leases, then financed purchases, and then cash purchases means that for the consumer cash is the best option, then purchasing with credit, and then leasing.

  3. A car lease is like any other “deal”. They get you in the door with a super low teaser rate and then after all of the add-ons, whether you pay for them upfront or over time like in a car lease, you end up paying a lot more than you thought.

    Next time you see a great deal listed, always ask yourself what the final payment will be. In many cases, it will be much more than the advertised price.

    • Yup. Don’t ever expect to pay the price that is offered. It’s just not going to happen. Make sure that you are educated before you go, otherwise you will surely pay more than you realize.

  4. Educational and informative! Thank you for this information as I was unclear about with some of the fees.

    Though a car lease may be costly, I think it’s important to evaluate your lifestyle and decide whether you can be faithful to your car until its end of time.

    • Glad you liked it David. Many people think car leases are good deals, but if you do the math they clearly aren’t. The only people leases really make sense for are the wealthy that don’t want to mess with buying and selling cars.

  5. This topic is so very, very important for those who are considering a lease instead of an outright purchase. Leasing is CLEARLY more expensive than buying in the long haul. The benefit to leasing, at least on the surface, is it allows people to obtain a lot more of what they probably don’t need – American consumerism at it’s worst, and keep trading up for newer and newer stuff. A lower monthly payment is appealing, ignoring the fact that the long haul cost is much greater.

    I wrote about this too on my blog, and the numbers that prove how expensive leases actually wind up being aren’t exactly hidden.

    Thanks for reinforcing this point. Leases truly are horrible.

    • Well said Steve. “it allows people to obtain a lot more of what they probably don’t need” … and can’t afford. It is really sad isn’t it? People spending even more money than they can really afford and almost fighting hand over fist to do it. Is the marketing just so clever today that people don’t even stop to think about how their financial actions might be affecting them? At least we have our heads on straight Steve…

    • Steve, while leasing the majority of the time is more money compared to financing that is not always the case. Sometimes due to low residuals manufactures supplement leases with dealer/buyer incentives for leases only, so monthly payments remain low. Thus leasing and/or leasing and then buying might be cheaper than financing for the same period of time. In my case it will be.

      I do however agree that leasing opens this scary door of consumerism of getting more than you actually need. Why pay for a Corolla when you can get a Lexus? In the end simply your are spending more than you should. However numbers to numbers NO leasing is not always more money.

      • There dealerships don’t make a ton of money on the leases – they make it when you take the car back and charge you astronomical rates for dents, paint chips, and mileage. Don’t think you’re smarter than them. They’re earning their money on leases and then some.

  6. This is VERY true those lease car special don’t take into account TTL or rental/dealer fees. But there are times were leasing over financing makes plenty of sense. It’s not uncommon for manufactures and dealers to have incentives and rebates but depending on the promotion they might be lease or finance only based. It’s very common for incentives and rebates to only be eligible for leases since manufactures sometimes want to offset low residual value, thus creating lower monthly prices.

    Another thing you should be aware of is what your actually getting for that low advertised lease special. Most of these specials are for base models with zero options, which might be fine for some but some dealers might not even stock base models. It’s not uncommon to see ads for Mercedes and see a $300 a month lease which again doesn’t include any fees or taxes but what also is not mentioned is that the $300 a month Mercedes will not have basic luxury features a Chevy might have. In order to get a proper Mercedes your payment easily can be $400-$500 if not more. Additionally a lot of the time you see an SUV ad for a super cheap lease but again most of the time this is for the FWD variant, but the problem is that most dealers especially in the North East only stock AWD versions.

    Your total cost is a little skewed. While insurance on leases in normally higher since you need to have a minimum amount of coverage all time, in my case my insurance went down on my first lease $30 a month. Secondly, while you do have to pay 15-25 cents each mile over your millage there is a chance you will not go over. In some cases you might be so under your millage that during or after the lease the car is worth more than the payoff. Deposition and damage fees can add up but can be avoided in a couple ways. Most leasing services if you lease another car by the same manufacture they will waive the turn in fee or if you buy the car at anytime you will not pay a turn in fee. Damages do heavily add up if they go above your damage allowance BUT a lot of leasing companies will forgive excess damage if you lease again from them again unless the car is a mess or again you have the option of buying the car to avoid all fees.

    It is important to note leasing is a form of pseudo renting, but unlike renting you can sell the car at anytime, just be aware most likely you will owe more than the cars worth since you are only paying depreciation. Secondly unlike most renting you have the option to buy the car at anytime and also have a set buyback price at the end of the lease which compared to buying a CPO vehicle might be thousands of dollars less.

    The best advice for leasing is don’t focus on monthly payments (At least at first) but negotiating the cars price. Focus on cars that are being sold bellow factory invoice and have dealer incentives/rebates. Make sure the money factor (fancy term for APR) is competitive. Also evaluate how much you drive and add 2k-3k more a year on top of that. Don’t fall for dealer extended accessories or warranties since in theory you will use the car for 2-3 years and they add to your monthly. Try to put nothing down besides the fees that can’t be rolled in. Don’t lease more than 36 months.

    • Thanks for the comment Joseph. I drive a 2002 Intrepid. My wife drives a 2003 Vibe. These have been great cars for us and we paid cash for them long ago. Leases are far more expensive than what we’re doing. Therefore, they make absolutely no sense. Honestly, it tires me out just to read about what I should watch out for when leasing a car! When we need another car I’m going to hop on Craigslist, find a deal, pay cash, and drive it for another 10 years. It’s definitely the cheapest way to go. 🙂

  7. I leased a Toyota Rav4 in 2014, my lease is about to end in a few months, however I plan on keeping the vehicle, what kind a fees might I incur, let me add that my mileage has surpassed the allowed mileage.

    • Hi Lisa. The mileage overage will be an obvious fee. Be careful with that one as that can get extremely costly incredibly fast.

      The fact that you’re buying the car might help you in terms of reducing fees due to scratches or dents (since they’re not “buying the car back” from you. Each place is different though. The very best thing for you to do is just call the company and ask them what the process is and what you can expect. That way there shouldn’t be any surprises. Good luck to you!

  8. I suppose your worst case scenario could be argued for, but not for me and the lease I just took on.

    I already carry full auto coverage since it is required for other personal reasons, so my insurance cost actually went down by about $2/yr by switching to leasing a new car.

    There is zero chance I will go over the mileage charge as my driving habits are very well-known from experience.

    That eliminates both the insurance and mileage charges you cite. If we accept the “incidents” and “disposition” fees at $800 for the three year term, the effective add-on is $22/mo, making my $146 lease a $168 lease. Oh the humanity!

    So yes, after knowing the “real” cost I would certainly go with driving this car for an all-in cost of $6K for three years, then handing it back to the dealer and getting a new one.

    YMMV of course.

    In a way, leasing takes advantage of the full coverage I was already paying for, thus reducing, rather than increasing, my ongoing expense burden.

    • Hi Morton. Sounds like you have a unique situation with the insurance. It also sounds like you don’t have too bad of a deal, but there are still too many variables for me. And, knowing that the car dealer would most like to lease a car to their customers than sell for cash or even sign up for a loan gives me proof that a car lease is the absolute most expensive way to go…

      I’ll stick with my $4,000 car that costs me $700-$800 a year all in for a while longer…. at least until I’m a millionaire. Then I’ll just buy a nicer, $10,000+ car for cash.

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