The One Percent Rule

The 1% Rule: A Quick Way to Judge a Car Lease Deal

“What is the 1% rule for quickly evaluating a car lease?”

The most accurate way to judge a lease is to examine its key components—price (cap cost), residual value, and money factor. However, you often don’t have that information when you first see a deal or receive a quote from a dealer.

When that happens, the 1% Rule offers a fast way to estimate whether a lease payment is reasonable. It’s not exact, but it’s a useful rule of thumb you can calculate in seconds on your phone.

The One Percent Rule

The 1% Rule works like this:

Divide the monthly lease payment (before sales tax) by the vehicle’s MSRP (sticker price).

• If the result is around 1% or less, the deal is generally very good.

• The lower the percentage, the better the lease deal.

This rule works best for typical leases of 36 months with 10,000–12,000 miles per year. For other lease terms or mileage allowances, a lease calculator will give a more accurate evaluation, although variations such as 39 months or 15,000 miles don't significantly change the results.

Example

Suppose the car you want to lease has:

• MSRP: $30,000

• Monthly payment: $325 (before tax)

• No down payment

Calculation:

290 ÷ 30,000 = 0.0108 (1.08%)

Because the result is very close to 1%, this would be considered an excellent lease deal.

Now consider another offer for the same $30,000 vehicle:

• Monthly payment: $375

375 ÷ 30,000 = 0.0125 (1.25%)

At 1.25%, the deal is still good, though not exceptional.

For this same car, a payment above about $390 (1.30%) would generally indicate an average or weak deal.

Adjustments When Using the 1% Rule

To use the rule correctly, you may need to adjust the payment used in the calculation.

Remove Sales Tax

The payment used in the formula should not include sales tax, because official taxes included in your lease payment are not negotiable and do not affect the value of a deal.

For example:

• Base payment: $300

• Sales tax (6%): $18

• Total payment: $318

To remove the tax:

318 ÷ 1.06 = $300 base payment

Use the $300 figure in your calculation.

Most advertised lease deals do not include taxes and fees, which are only added later by the dealer at the time you sign your lease.

Include Any Down Payment

If the lease requires a down payment (cap cost reduction), convert it into a monthly equivalent and add it to the payment.

Formula:

Monthly Payment + (Down Payment ÷ Lease Term) = Equivalent Monthly Payment

Example:

• Monthly payment: $300

• Down payment: $1,000

• Lease term: 36 months

1,000 ÷ 36 = $28

Effective payment:

300 + 28 = $328

Use $328 in the 1% Rule calculation.

Bottom Line

Here is how to evaluate the results of your 1% Rule calculation:

• Under 1% – Outstanding deal

• 1.0%–1.25% – Very good deal

• 1.25%–1.30% – Average deal

• Above 1.30% – Probably not a great deal

If a lease looks good using the 1% Rule, you can then analyze the full details using a proper lease calculator. It's also a great way to compare dfferent lease deals.