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What the Heck are Money Factors for Car Leasing?

Money Factors and Car Leasing

So you’ve decided to lease a new car and you start doing some research on all the advertisements that make car leasing too good to believe. The monthly payment is appealing, but you need to check all the disclaimers and you discover that there is no sign of an interest rate. Then you come a across a statement talking about the money factor and you are wondering what is a money factor for car leasing. It seems that your payment is calculated using a money factor rather than an interest rate, but it’s very confusing so what is the deal?

Money Factors and Interest Rates

Many automakers use a money factor for car leasing than the standard interest rate that is easier to understand, but for some reason they use this confusing code to compute the interest charges on a vehicle lease. In a nutshell the money factor can be converted to an interest rate by multiplying it by 2400.

The money factor is displayed as a fraction or decimal equivalent such as 0.00095, which equates to 2.28%. The grid below will be a quick guide to figuring out your interest rate when the car dealership quotes you a money factor based on your credit used to determine you monthly car lease payment.

Money Factor Conversion Chart

Money Factor Interest Rate Money Factor Interest Rate
.00001 .024 .00110 2.64
.00010 .24 .00140 3.36
.00025 .60 .00175 4.2
.00040 .96 .00200 4.8
.00055 1.32 .00225 6.0
.00085 2.04 .00270 6.48

If you were at the car dealership and leasing an automobile you would obviously read through all the paperwork before signing the lease agreement. If you were unfamiliar with how leasing money factors work you probably wouldn’t give this decimal equivalent a thought. In fact you would probably think that you were getting an incredible finance rate on your new lease.

Money Factor is the Car Salesman’s Tool

The car salesman uses the money factor and residual value to his or her advantage when to trying to lease a car to you and it usually works quite well. Most consumers are in the dark when it comes leasing automobiles and the car salesman will use this fact to help make sales, larger profits and ultimately larger commissions for themselves. Knowledge is power and the educated car buyer or lessee can save a fortune over the consumer that goes in blind.

To wrap up the explanation of money factors for car leasing you can rest assured you would be miles ahead of the next person if you were thinking about leasing a car. You know that the mysterious figure called the money factor is simply a decimal equivalent for calculating your monthly lease payment and interest charges. Just remember to multiply by 2400 and you will be good to go if car leasing is right for you and your lifestyle.

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