The 1% rule for leasing is a shopper's rule of thumb, not a regulation

The rule, stated plainly - and where it comes from

There is one calculation. LeaseGuide.com, a long-running leasing reference, states it as: “Divide the monthly lease payment (before sales tax) by the vehicle's MSRP (sticker price).” A result at or near 1% is treated as outstanding. The same page calls it “not exact, but ... a useful rule of thumb” and says it “works best for typical leases of 36 months with 10,000-12,000 miles per year.”

It has no institutional origin we can trace. The earliest widely-read statement we located is a December 2018 Leasehackr forum thread: “monthly payments should be about 1% of starting MSRP, so $600 for a $60,000 car would be a ballpark good deal.” A poster in that thread adds that taxes “vary widely depending upon where one resides and should not be considered in this 'so called' 1% rule” - which is why the pre-tax version is the one usually quoted.

The community that spread it now argues against it. In a June 2025 thread on the same forum, a member writes that the rule “never has applied, never will apply, and perpetuating it is probably the greatest disservice this website has done to people trying to learn to lease effectively,” and another notes two buyers can take the same discount on the same car and land at 0.7% and 1.2%.

What federal law actually defines on a lease

The Consumer Leasing Act, which the FTC describes as “regulat[ing] personal property leases that exceed four months in duration and that are made to consumers for personal, family, or household purposes,” is implemented through Regulation M. Section 1013.4 lists what must be itemised: the gross capitalized cost “including a disclosure of the agreed upon value of the vehicle” (f)(1), the capitalized cost reduction (f)(2), the adjusted capitalized cost (f)(3), the residual value (f)(4), the depreciation - “the difference between the adjusted capitalized cost and the residual value” (f)(5) - and the rent charge (f)(6).

Notice what is missing. MSRP is not a required lease disclosure; the agreed-upon value is. The 1% rule builds a payment out of the numbers below, then divides it by a figure that appears nowhere in them.

The arithmetic the 1% rule is approximating

A base payment has two parts. Depreciation is the adjusted capitalized cost minus the residual value - $18,800.00 minus $12,350.00, or $6,450.00 in the model form. The rent charge is what the Federal Reserve calls “the portion of your base monthly payment that is not depreciation or any amortized amounts,” and “similar to interest on a loan.” Add and divide by the term: ($6,450.00 + $5,295.00) / 48 = $244.69.

The rent charge reaches you as a money factor. The Federal Reserve is blunt: “A money factor is a number, often given as a decimal, used by some lessors or assignees to determine the rent charge portion of your monthly payment,” but “it is not a lease rate and cannot be converted to a lease rate by moving the decimal point,” and it “typically is not disclosed to you.” The Board adds that “federal law does not require a uniform calculation and disclosure of a lease rate.” Cars.com gives the shop-floor conversion: multiply by 2,400, so “a money factor of 0.0022, for example, equates to 5.28 percent.”

The residual is set before you arrive. The Federal Reserve's own example applies a guidebook percentage to the sticker: “The 3-year future value is the adjusted MSRP times the adjusted residual percentage: $29,975 x 55% = $16,486.25.” Two cars with the same MSRP and different residual percentages produce different payments with no discount involved - which is why the 1% test mostly rewards cars that hold value, not deals you negotiated.

Does 1% hold up against the market?

Roughly, no - the typical lease sits above it. Experian reported an average auto lease payment of $659 from June 2025 data, “slightly lower than the average monthly auto loan payment of $682.” Cox Automotive put the average new-vehicle MSRP at $51,124 that same month. Dividing gives about 1.29% - our arithmetic on their two figures, and a loose one: the $659 covers all leased vehicles on all terms, tax included in many states; the $51,124 covers everything sold.

One more number matters if MSRP is your yardstick. In June 2026 Cox Automotive put the average MSRP - “commonly called 'the asking price'” - at $51,654 against an average transaction price of $49,758, with incentives at 7% of ATP. Buyers on average pay about 96% of sticker. Leasing is also a shrinking slice: Experian found “new leasing declined from 24.04% in Q2 2025 to 23.75% in Q2 2026.”

The 1.5% version, and the '90% rule' that is not about cars

The 1.5% version is the same heuristic with the bar lowered, and it is even less anchored. We found no primary source defining it - no regulator, lender, automaker or established trade publication. The closest verifiable statement is a Leasehackr member writing that the right target “may be 0.5% or 1.5% depending on the car that you choose.” Any claim that 1.5% is today's market norm is unsourced as far as we can establish, so we print no figure for it.

The “90% rule in leasing” belongs to a different field. Under ASC 842 a lease is classified partly on whether the present value of the lease payments plus any lessee-guaranteed residual “equals or exceeds substantially all of the fair value of the underlying asset”; PwC notes the FASB indicated “one approach to applying this indicator is to consider payments equal to or greater than 90% of the underlying asset's fair value.” It governs how a company books a lease, not whether your payment is good.

Check the MSRP the rule is measured against

If you are going to divide by MSRP, divide by the right one. The Monroney label required by 15 U.S.C. 1232 must show “the retail price of such automobile suggested by the manufacturer,” the suggested price “for each accessory or item of optional equipment,” the transportation charge, and the total of the three. Dealer-added items sit outside that total, and a payment quoted against an inflated sticker flatters any percentage rule.

A VIN decode confirms the factory build and, through the window sticker, the original MSRP line by line. That is the honest limit of what a VIN does here: it verifies the denominator. It cannot show the money factor, the residual the bank assigned, the incentives that month, or the dealer's margin - those live in the Regulation M itemisation you are entitled to see before signing. The CFPB adds the context worth having first: “A typical lease is two to four years,” “most leases restrict your mileage to 10,000-15,000 miles per year,” and the cost of the vehicle, the end-of-lease value, rental charges and mileage limits are all negotiable. Negotiate those, then run your percentage as a sanity check.

Buyer checklist

1. Pull the window sticker for the exact VIN and read the MSRP total, including destination - that is the only defensible denominator for the rule.
2. Ask for the lease disclosure itemisation Regulation M requires: gross capitalized cost, cap cost reduction, adjusted capitalized cost, residual value, depreciation and rent charge.
3. Ask for the money factor in writing; multiply by 2,400 for an approximate APR, and remember the Federal Reserve says it is not a lease rate and typically is not disclosed.
4. Confirm the term and the annual mileage allowance before comparing any percentage - a 24-month or 15,000-mile lease is not comparable to a 36-month, 10,000-mile one.
5. Add the drive-off amount to the comparison. A payment hit to 1% with $4,000 down is a different deal from the same payment with nothing down.
6. Check the vehicle's own history if the lease is on a used or demo unit - a loaner or a title brand changes the residual assumption underneath the payment.