The money factor can be one of the trickiest aspects of new car leasing. First, new car dealerships don’t have to provide you with the money factor used to calculate your new car lease price. Second, the money factor can easily be confused with other figures used in lease price calculation. Third, the new car lease money factor won’t be much help to you without a mathematical formula. If that’s not enough to completely scare new car shoppers away from leasing, I don’t know what is.
The secret of the money factor is that it’s not as complicated as it sounds. Basically, it’s very similar to the interest on a new car loan written in a different way. The new car lease money factor may also be called the lease factor, or just the factor. It is used to calculate how much you pay for financing over the length of your lease. The higher the new car lease money factor the more you’ll pay for financing.
The money factor will appear as a very tiny decimal number, something like 0.00237 and you can use it to estimate the interest rate of your lease offer.
Basic New Car Lease Money Factor Formulas
Calculate the APR using the money factor using the following formula.
Money Factor x 2400 = APR
Example: 0.00237 x 2400 = 5.69% APR
Calculate the money factor using the APR using the following formula.
APR/2400 = Money Factor
Example: 5.69/2400 = 0.00237
Note: The money factor is derived using a much more complicated mathematical formula, but for general purposes the two above formulas should be sufficient for lease price calculations.
Watch Out!
Sometimes dealers may shorten the money factor from 0.00237 to 2.37 – this makes the money factor look more like the actual interest rate. Clearly getting a 2.37% APR would be a much better lease deal than getting a 5.69% APR. New car lease shoppers are likely to jump on a deal like this, only to discover the true interest rate of their lease at a later date.
Whether it’s a honest mistake or a shady dealer tactic, making this mistake can mean $1,000 in extra interest costs over the length of your lease. Be very careful and confirm exactly what the numbers you’re presented with are.
Dealer’s aren’t required to provide consumers with the money factor and it’s not always discussed during the lease negotiating process. When you start negotiating the price of your new car lease, ask the dealer to provide you with the money factor. Even though the salesperson is not required to provide it, he should. If not, consider working with a different dealership. Openness is clear sign of trustability!
Avoid headaches by requesting a free no-obligation new car lease price quote. We’ll connect you with pre-qualified dealers offering their top Internet only lease offers, just select the best lease deal offered!
