Money factor

Before you rely on it

What to check

Convert first, then compare against what financing the same vehicle would cost.

The common error

Where people go wrong with money factor

Negotiating the monthly payment and ignoring the money factor. Payment can be lowered by stretching the term or raising the residual assumption while the finance charge stays exactly as expensive.

Worked through

Money factor in plain numbers

A lease quotes a money factor of 0.00125. Multiply by 2,400 and you get an approximate annual rate of 3.0%. Say the car's capitalized cost is $35,000 and the residual value at lease end is $21,000; the monthly finance charge is ($35,000 + $21,000) × 0.00125, which is $70. Depreciation is ($35,000 − $21,000) ÷ 36 months, about $388.89; the base payment is roughly $458.89 before tax and fees. Raise the money factor to 0.00250, an equivalent 6.0%, and the finance charge doubles to $140. That is why a small-looking decimal matters. The lease is a series of charges built from a few numbers, and this is one of them.

Easily confused

Money factor and its neighbours

The money factor is not an interest rate, and it is not the residual value or the lease rate quoted in a different form; it expresses the finance charge as a small decimal, and multiplying by 2,400 gives an approximate APR. It is applied to the sum of the capitalized cost and the residual, not to a declining balance; the residual is the estimated value at the end. The capitalized cost is the price you finance after fees and rebates. Some dealers quote the money factor as a rate, or hide it inside a payment, so ask for the number directly.

In real decisions

Where money factor turns up

Anyone leasing a car meets it when comparing offers. Shoppers ask the dealer for the money factor, the capitalized cost and the residual, then check them against published figures for the model. Conversion to an APR-equivalent makes it comparable with a purchase loan. Buyers negotiate the capitalized cost first, then confirm the money factor is the standard one for their credit; it also helps evaluate whether a lease or a purchase is cheaper for your driving pattern.

Know the edges

Where money factor stops being reliable

Dealers can mark up the money factor above the lender's base rate, so a quoted figure may not be the lowest available. Fees, taxes and mileage limits add costs that the money factor does not include. The APR-equivalent is an approximation. Leases vary by state and lender, and taxes are computed differently. Get all figures in writing and calculate the total cost over the term, including any charges at lease end.

Quick answers

What people ask about money factor

Can I negotiate the money factor? Often yes, especially with good credit. Dealers may mark it up above the lender's base rate, so ask for the base figure and compare.

How do I turn a money factor into an APR? Multiply by 2,400. A factor of 0.00125 equals about 3%.

Is a lower money factor always better? Yes for the finance charge, but check the capitalized cost and residual too. A low factor with an inflated price can cost more than a slightly higher factor with a lower price.