The “money factor” on your car lease is essentially the interest rate being charged by the financing company.
Just like an auto loan or a mortgage, a car lease has an associated interest rate because you’re essentially borrowing the car and must pay interest.
Also referred to as the “lease factor”, it determines what you’ll pay in the way of finance charges over the life of your lease. Basically, the higher the money factor, the higher the cost of the lease, and vice versa.
How to Convert the Money Factor to Standard APR
So what does this tiny fraction mean, and how can I make more sense of it?
Fortunately, it’s easy to convert money factor to a standard interest rate (APR), simply by multiplying the number by 2400, regardless of the lease term (the 2400 doesn’t mean 24 months).
Let’s look at an example:
Money Factor = .0025
Interest Rate = Money Factor x 2400
Money Factor = Interest Rate / 2400
To find out what the money factor is in terms of interest rate, we simply multiply by 2400 to get a rate of 6.0% APR in the above example. You can also do the reverse to find out what the money factor is if you already have the interest rate. Simply divide the interest rate by 2400 and you’ll get the money factor.
If the money factor is expressed as a larger number, such as 2.5%, simply multiply by 2.4 instead to get the interest rate.
Money Factor Should be Lower than Standard Auto Loan Rates
The money factor should be well below the going rate for an auto loan, as car leases require substantially less interest than traditional auto loans.
That said, take a gander at auto loan rates and compare it to your money factor to see if it makes sense.
How is the Money Factor Determined?
The money factor is determined by the financing company, and can vary by make, model, year, term, company, etc.
It’s also driven by your credit score, and can be bumped higher by the dealer during negotiating, often unbeknown to you. The higher your credit score, the lower the money factor. And vice versa, so make sure you keep your credit in pristine condition.
Money Factor Might be Hidden
Keep in mind that the money factor may not be shown in the lease paperwork, so you’ll have to do your own math to make sure you’re getting the rate you agreed upon with the dealer.
Check out my page on what makes up a car lease payment to ensure all the numbers fit properly.
Also, don’t be afraid to ask the dealer what the money factor is! They should tell you.
And be sure to shop around and negotiate for the best money factor, just as you would an interest rate on any other loan.