Money Factor – Explained

what is a lease factor

The term, money factor , specifies a finance rate for a car lease.

It is similar though not quite the same as interest on a loan, and expressed totally differently.

Money factor, which is sometimes called “lease factor” or simply “factor”, determines how much you’ll pay in finance charges each month during your lease. The higher the money factor, the higher your monthly payment and the more you’ll pay in total finance charges. Therefore, when shopping for a lease, you’ll want to look for the lowest money factor.

Money factor is always expressed as a very small number, such as .00275. To convert to an equivalent annual interest percentage rate (APR), simply multiply by 2400. Therefore, in our example. 00275 multiplied by 2400 yields 6.6% as the equivalent interest APR.

See our Money Factor Calculator .

Sometimes money factor is expressed in a more readable

form, such as 2.75, which actually means .00275. This can be confusing to leasing consumers because it appears to be a low interest rate, which it is not. Some car salespeople who don’t understand leasing will mistakenly quote money factor as an interest rate, or vice versa.

Special limited-time lease deals offered by car companies typically have reduced money factors to help create low monthly payments. Some such rates are close to 0% equivalent APR. However, you won’t actually see the money factor in the fine print of the ads or commercials for these deals.

Take a look at the Best Car Deals web site for special leases with low money factors now being offered by car manufacturers. Low money factors make for low monthly payments. Be aware, however, that in order to quality for a low money factor deal, you must have a good credit score.


Category: Credit

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