Now that we have an understanding of the terminology and the formulas used to calculate the lease payment, we need to talk about where to get the numbers for the specific vehicle you want to lease.
So where do we start? What if we could determine what other people had paid for the car and use that as the Cap Cost? Then when we begin negotiations at the Dealership, we could attempt to get as close to this number as possible (or ideally below it). Knowing what other people have paid for the vehicle will help you feel confident that you are getting a fair price.
So how can you determine what others have paid? Fortunately Kelly Blue Book (KBB) and Edmunds provide this information along with most of the other information you will need to get a great deal on your lease. Both of these sites are excellent resources for automotive information including pricing for new and used cars among other things. For leasing, we are interested in the new car prices and I'll use KBB in an example to show how the research should be conducted.
NOTE: truecar.com is another site that will display a lot of the information needed to do the lease calculations. In addition, this site allows you to print a certificate to "lock in your savings" and take it to one of their TrueCar Certified Dealers. To see how we can use that to our advantage go to the True Car Research Page.
Example: We will be doing research on a 2012 Toyota Camry SE and we'll use all the factory defaults for this example. When you begin your research, you will want to be as accurate as possible when selecting the factory options so the monthly payments you come up with will be a realistic target for you to strive for when you begin negotiations at the Dealership.
First we'll navigate to the KBB new car pricing page. Then we'll select the correct Make (Toyota) and Model (Camry) from the dropdowns and click the Next button. We'll then follow the wizard-like screens answering the questions along the way about the vehicle we want to research. Continue answering the questions and selecting the options for the vehicle you want until you get to the Fair Purchase Price page (see below). KBB defines the "Fair Purchase Price as follows: "This is the price people are typically paying a dealer for a new car. This price is based on actual new-car transactions and adjusted regularly as market conditions change. This page alone has most of the information we will need to calculate a monthly lease payment.
The page contains the MSRP and the Fair Purchase Price which we will use as the Cap Cost in our calculation. In some cases, KBB will not have enough information to provide the "Fair Purchase Price" which will most likely happen if the car is brand new and the model you are looking at doesn't have enough sales for KBB to determine the value. In that case, using the "Dealer Invoice" price in the calculations is acceptable (although you might not be able to negotiate the Cap Cost that low, but it doesn't hurt to try).
KBB also provides the "Projected Resale Value" for the vehicle over a period of time. So this number can be used as the Residual Value in the calculations.
So lets go ahead and plug in the numbers we have so far:
The Residual Value was calculated when I added the Residual Percentage.
For this example we'll do a 36 month lease and use a Tax Rate of 7%. That leaves the Interest Rate / Money Factor as the only remaining piece of information that we need to find. When you get to the Dealership and begin negotiating, you should ask for the specific Interest Rate they are giving you for the lease deal. If they won't give the Interest Rate ask for the Money Factor. I don't think they are required to provide this information, but if they don't you are not required to lease the car from them...find another Dealership who will work with you.
If you don't know the Interest Rate /Money Factor at this point, you can go to the Bankrate.com Auto Loan Rate search tool. At this point we are just trying to find the ballpark for the current Interest Rates being offered for Auto Loans. Bankrate.com lists Interest Rates for new and used vehicles so just use the new vehicle rate for the length of the lease you are looking at. For our example we will use 2.5%.
At this point in the example we have entered all the necessary values and the results shown below are displayed when we hit the "Calculate" button.
We used KBB for this example, but Edmunds shows similar information and either site (or both!) can be used for the research. If you spend some time doing the necessary research and get familiar with the calculator you will increase your chances of getting a great lease deal!