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 reason

able. It’s not exact, but it’s a useful rule of thumb you can calculate in seconds on your phone.

The Leasing 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 rated as outstanding

• About 1.3% - 1.45% is considered average

• 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, our Lease Calculator will give a more accurate evaluation, although small 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: $450

450 ÷ 30,000 = 0.0125 (1.50%)

At 1.50%, the deal is not good, though not quite poor.

For this same car, a payment below about $390 (1.30%) would generally indicate an average or better 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 the 1% Rule 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 payment equivalent and add it to the specified payment. Subtract any sales tax from the down payment (amount due at signing) before using it in the calculation. For better accuracy also,subtract the first month's payment amount, which is always included in the amount due at signing.

Formula:

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

Example:

• Monthly payment: $300

• Down payment: $1,000

• Lease term: 36 months

1,000 ÷ 36 = $28

Effective monthly 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 1.12% — Outstanding deal

• 1.12%—1.30% — Very good deal

• 1.30%—1.45% — Average deal

• 1.45%—1.60% — Not good deal

• Above 1.60% — Poor deal

If a lease looks good using the One Percent Rule, you can then analyze the full details using our Lease Calculator. Using this technique is a great way to compare dfferent car lease deals.