When you lease a car, you’re paying for the vehicle’s depreciation over the lease term plus some interest.
The money factor, often presented as a tiny decimal, plays a crucial role in determining your monthly payment.
You can better compare lease deals by knowing how to calculate and convert the money factor to an annual percentage rate (APR).
A money factor calculator is a handy tool for quickly assessing the cost of leasing a vehicle.
Money Factor Definition
The money factor is the lease financing cost expressed as a decimal. It is sometimes referred to as the “lease factor,” “lease rate,” or “lease fee.”
Think of it as a loan’s equivalent of an Annual Percentage Rate (APR). Unlike APR, which is expressed as a percentage, the money factor is a small decimal figure.
Example:
| Percentage (APR) | Money Factor |
|---|---|
| 6% | 0.0025 |
To convert a money factor to an APR, multiply it by 2,400. For instance, a money factor 0.0025 equals an APR of 6%.
Money Factor Formula
To calculate the money factor, use the following formula:
Money Factor = Annual Percentage Rate / 2,400Interest Rate Formula
To convert the money factor to an APR:
APR = Money Factor * 2,400For example, if your money factor is 0.00125, the APR is:
APR = 0.00125 * 2,400 = 3% This percentage helps you compare the lease terms with traditional car loans. The capitalized cost (vehicle’s price) and the lease fee (additional charges) are also factors in the monthly payments.