Car Lease Calculator

Lease Rentals and Residuals

A car lease rental is the level payment that, with the residual, repays the amount financed at the quoted rate. The calculator finds it by present value. Every rental and the residual, discounted at the rate per rental period, add up to the amount financed.

For rentals in arrears, the rental is (A − B × v) × i ÷ (1 − v). A is the amount financed, B is the residual, i is the rate per rental period and n is the number of rentals. The discount factor v is (1 + i)⁻ⁿ. At a zero rate, the rental is simply (A − B) ÷ n.

Rentals in advance fall at the start of each period, so the first rental is due when the lease begins. Each advance rental equals the arrears rental divided by (1 + i). In both cases the residual falls due at the end of the term.

The starting example finances $50,500.00 at 8% over 36 monthly rentals, with a $23,440.00 residual. Rentals in advance are $997.58, compared with $1,004.23 in arrears. Paying each rental a month earlier lowers the finance charge from $9,092.26 to $8,852.84.

The residual is the amount still owed when the lease ends. ATO Taxation Determination TD 93/142 says it should reflect the car's market value at the end of the lease. For a car with an 8-year effective life, its guide is 75% of cost less 9.375% for each year leased.

That gives 65.63% of cost for a one-year lease, 46.88% for three years and 28.13% for five years. A lower residual can be used where a well-considered, fair estimate of the car's market value at lease end is lower. The calculator shows the guide beside your residual for terms of 12 to 60 months.

Business and Novated Lease Scenarios

The calculator models the finance from the vehicle cost, rate, term, residual and fees. Salary packaging, GST credits and fringe benefits tax (FBT) change what the lease costs the driver or the business. They do not change the rental the financier charges, so the calculator keeps them in two separate tax fields.

For a business car lease, a GST credit depends on the business being registered for GST and on the car's business use. business.gov.au notes that a car used partly for business usually attracts only a partial credit. Enter the expected credit as a tax benefit instead of reducing the vehicle cost.

In a novated lease, the employee sacrifices part of their salary and the employer provides the car as a benefit. Car benefits in a salary sacrifice arrangement can attract FBT. The ATO's salary sacrifice example works out a car's taxable value at the 20% statutory rate and shows employee contributions reducing the FBT. Enter the tax saved and any FBT cost from the packaging quote.

For an electric or used car, enter the price, rate, residual and fees from the quote. The calculator does not assume that any tax exemption applies. The ATO's electric cars exemption covers battery electric and hydrogen fuel cell cars that meet its conditions.

Those conditions include when the car was first held and used, and whether luxury car tax was ever payable on it. Buying the car used does not reset that test, so the buyer checks every earlier sale. Plug-in hybrids no longer count as zero or low emissions cars, apart from the ATO's conditions for existing arrangements.

Comparing the Full Cost

Compare leases on total cash paid over the same term: every rental, the residual and all fees. Total finance cost is that total less the vehicle cost, so it combines interest and fees in one figure.

Fees enter the calculation in three ways. Fees added to the lease increase the amount financed, so they attract interest and raise every rental. Upfront fees are paid when the lease starts. A fee per rental is paid with each rental. Enter each fee once, in the field that matches the quote, so none is counted twice.

A larger residual lowers each rental but raises the finance cost, because more of the balance stays outstanding for longer. The comparison below keeps the starting $50,000 car, $500 fee added to the lease, $10 fee per rental, 8% rate and 36 monthly rentals in advance. Only the residual changes.

• 0% residual ($0.00): $1,572.01 a month, total cash paid of $56,952.22 and a total finance cost of $6,952.22.
• 28.13% residual ($14,065.00): $1,227.32 a month, total cash paid of $58,608.70 and a total finance cost of $8,608.70.
• 46.88% residual ($23,440.00): $997.58 a month, total cash paid of $59,712.84 and a total finance cost of $9,712.84.

The 46.88% residual cuts the rental by $574.43 a month compared with no residual. It adds $2,760.62 to the total finance cost, and $23,440.00 still falls due at the end of the term.

To compare the lease with a car loan, enter the same price, rate, term and balloon in the chattel mortgage calculator. Then compare total cash paid over the same term. Ownership and tax treatment differ between the two products, so assess those effects separately.

The cost breakdown in the results reconciles the lease. Rentals plus the residual equal the amount financed plus the finance charge. In the rental schedule, the last closing balance equals the residual. The final rental can differ from the others by a few cents because each period's interest is rounded to the cent.