A lease quote often gives you a money factor instead of an interest rate. It looks like a small decimal, such as 0.0025, and it’s hard to judge on sight.
Paste in the number from your quote to see the interest rate hiding behind it, or build up a monthly payment from scratch.
How to use the Money Factor Calculator#
- Choose what to do. Pick a payment estimate or a conversion.
- Enter the lease numbers. For a payment, add the cost, down payment, residual, term and money factor.
- Read the result. The result shows the payment split into depreciation and finance charge.
The formulas#
A money factor of 0.0025 is about 6 percent APR. On a capitalised cost of 30,000 (price 32,000 less a 2,000 down payment), a residual of 19,200 and a 36-month term, depreciation is 300 a month and the finance charge is 49,200 × 0.0025 = 123. The payment is 423 before tax.
Using it when you negotiate#
Ask for the money factor, the capitalised cost and the residual value in writing. You can negotiate the price and sometimes the money factor, but the residual is set by the lender. Taxes and fees vary by state and country, so the payment shown here is before tax and doesn’t include any extra charges.
A worked example#
A car has a capitalised cost of $38,000, with $3,000 down, a residual value of $22,800 after 36 months and a money factor of 0.00125. The adjusted cost is $35,000. Depreciation is ($35,000 − $22,800) ÷ 36 = $338.89 a month. The finance charge is ($35,000 + $22,800) × 0.00125 = $72.25. The payment is $411.14 a month before tax, and the equivalent APR is 3.0 percent.
Reading a lease quote#
A dealer may quote a monthly payment and nothing else, so ask for the capitalised cost, the residual value, the money factor and any fees. The capitalised cost is the price you are financing, and it can be negotiated just like the price of a car you buy. A lower residual value means more depreciation to pay for, and a higher money factor means more finance charge. Moving one of these by a small amount can change the payment by tens of dollars a month.
Why the 2,400 factor#
A money factor looks like 0.00125, a number that doesn’t mean much to most people. Multiplying it by 2,400 gives an approximate APR. Lease finance charges are worked out on the average amount borrowed over the term, which is roughly half of the sum of the cap cost and the residual. The money factor is a monthly rate on that amount, so you multiply by 12 for a year, by 2 to undo the halving and by 100 to turn the decimal into a percentage. That is where 2,400 comes from.
Use the second and third modes to convert in both directions and compare a lease with a loan on equal terms. If you want to compare with buying, try the loan payment calculator.
Frequently asked questions#
The finance rate on a lease, shown as a small decimal. Multiply by 2,400 to get an approximate APR.
Sometimes. It depends on the lender and your credit. It never hurts to ask.
No. Tax and fees depend on where you live, so add them separately.
The estimated value of the car at the end of the lease, set by the lender.
It depends on the lender and your credit. A money factor of 0.00125 equals 3 percent APR, and 0.0025 equals 6 percent. Compare the figure with the manufacturer’s advertised rate for your credit tier, and ask the dealer whether they have marked it up.
Multiply it by 2,400. A money factor of 0.0020 gives 4.8 percent APR. To go the other way, divide the APR by 2,400, so 6 percent APR is a money factor of 0.0025. The calculator does both.
Often yes. The base money factor comes from the lender, and dealers are sometimes allowed to add a markup. Ask for the base rate, and compare it with what the manufacturer advertises for your credit score. If the dealer’s number is higher, you can ask for the lower one or compare it with a loan or lease from another dealer.