Q:

# How do you calculate the money factor on a lease?

A:

In order to calculate the money factor, multiply the annual percentage rate (APR) by 2400. The answer to this multiplication problem is the interest rate the dealer is using to calculate the monthly payment on the lease.

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1. Find the APR

Ask the dealer for the number, because in most cases this is not legally required to be disclosed anywhere in the lease documents. If comparing dealers, realize the lower the money factor is, the less the financing costs are for the length of the lease.

2. Express the money factor accurately

When looking at the money factor, recognize it as a very small number, such as 0.00375. Occasionally, a dealer will express this number as 3.75. Some dealers give the impression, either intentionally or not, that this is the interest rate for the lease. This is not true. Ask specifically for the money factor. If given the money factor in this form, convert it to the proper form by dividing it by 1000.

3. Calculate the interest rate from the money factor

Once the accurate money factor is obtained, multiply that number by 2400. That answer is the interest rate the dealer is charging on the lease financing. The lower the interest rate being charged, the lower the monthly payment is. Always calculate an accurate interest rate before signing a lease contract.

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